Insuring Your Income

According to the Council for Disability Awareness, a 20-year-old entering the workforce today has a 30 percent chance of experiencing a disability of three or more months before reaching retirement age. In contrast, National Center for Health statistics suggest the odds of dying prior to retirement are less than 15 percent. Think you should revisit that disability benefit at work?

There are two major types of disability insurance. Short-term disability insurance provides a benefit for as long as one week to 52 weeks. Long-term disability benefits usually begin after three months and can continue until normal retirement age. An employer offering both plans should design them to provide seamless income replacement for disabled employees.

Short-Term Disability

Whether to offer short-term disability depends on your "paid time off" package (PTO). Employers with rich PTO or salary continuation may find little demand as most employees will have banked PTO time they can use to cover short absences, or will continue to receive their regular pay. Conversely, employers with low PTO benefits would likely see greater demand.

Data from LIMRA shows that 39 percent of NH businesses with five to 99 employees offer short-term disability while 100 percent of companies with 5,000 or more employees do.

The key components of a short-term plan are the waiting period (number of days of disability before benefits are payable), benefit percentage (or dollar amount), weekly benefit maximum, benefit duration (length benefits are payable), and the definition of disability.

                  Waiting period: From the first day after the accident and eighth day of an illness to 30 days for both.

                  Benefits: 40 to 70 percent of regular pay, (about 60 percent is average) to a maximum weekly benefit ranging from $100 to $2,000, with $1,000 or $1,500 being most common.

                  Benefit duration: 13 to 52 weeks, with 26 weeks most common; any waiting period is subtracted from the duration.

When defining disability, many policies will pay a partial benefit for having to work a reduced schedule. It's also important to look for a pre-existing conditions clause that may apply to new hires and deny coverage for previous illnesses or injuries for up to 12 or 24 months.

Many employers cover the entire monthly premium, while others pay a portion of it, or none at all. Some employers pay the full cost of a base plan (such as 40 percent of salary) and allow employees to buy-up to a higher benefit. When paid in full by the employee, employees can usually tailor the benefit to their needs (waiting period, weekly benefit amount, benefit duration), but may have to provide some medical information or have the whole group meet a minimum participation level (such as requiring at least 25
percent of eligible employees to participate).

Long-Term Disability

While insurance industry statistics show that only 30 percent of U.S. employees are covered by long-term disability plans, the benefits they provide can be the difference between paying the bills or losing one's home and going bankrupt. According to the National Safety Council's 2004 Injury Facts Report, a family is 16 times more likely to lose their house due to disability than death. Even if you plan on receiving social security disability payments, they may not be enough.

The key components of a long-term disability plan are the same as short-term disability, as are the payment sharing options.

Elimination (waiting) period: Must be disabled 90 to 180 days prior to benefits being paid, but it can be up to a year.

Benefits: 40 to 70 percent of earnings, monthly maximum is $1,000 up to $15,000 or higher.

Benefit duration: Usually to age 65 or normal Social Security retirement age. Can be five years on leaner plans.

The standard definition of long-term disability is being unable to perform your own occupation for the first two years, but then moves to being unable to work at all. Most professional employers (law firms, physician's practices, accounting firms) will pay more for policies including an own occupation definition to age 65, and some will even go to own specialty. Almost all plans provide coverage for partial disability and do not require  that employees were ever totally disabled to qualify for benefits.

Disability benefits are a key part of a comprehensive benefits package in order to attract talented employees and help secure employees' financial well being if they become disabled. Employees should look at their minimum financial requirements in the event they become disabled and can't work. We insure our lives, our houses and our vehicles, so why not our incomes? 

Jim Scammon is executive vice president of Granite Group Benefits, LLC in Manchester. He can be reached at JimS@granitegroupbenefits.com or visit www.granitegroupbenefits.com.