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Add Value to Your Employee Benefits with Life and Disability

Thought Leader

Accident and tragedy are two things no employer wants to see for employees. PTC talked with a consultant for the Corporate Coverage Group team to learn more about employee benefits products available to our members.

Disability products and life insurance give an employee peace of mind knowing they have financial support in the event of unforeseen circumstances. And the employer is helping to protect employees which is smart for recruitment and retention of talent,” said Chuck Whitford from JRG Advisors.

Why should employers consider getting a disability plan?

According to the Council for Disability Awareness, every seven seconds someone in the U.S. suffers an illness, injury or accident that will keep them out of work for more than one month. For individuals out of work for three months or more, the average time off of work due to a disability averages 2.6 years. That’s 136 weeks without a paycheck.

For most business owners, the problem escalates as they try to satisfy the current work demand and take care of the disabled employee.

For the employee, buying coverage as an individual can cost as much as an entire group account sponsored by the employer because of stringent underwriting.  Plus, employer plans can be structured so that the premiums are deducted as a business expense, but benefits can be received on an income tax-free basis.

Overall, the cost of implementing a long-term disability plan is relatively small for employers and has great impact for the employees and the company.

What’s the difference between short-term and long-term disability?

Short-term disability fills the gap between day one of disability and when the long-term benefits begin. Typically, a short-term disability contract will cover the first 13 or 26 weeks of disability. Many people are living paycheck to paycheck so the short-term disability can benefit those lacking sufficient savings.

Long-term disability pays a portion of the disabled employee’s income after they run out of both sick leave and short-term disability benefits, typically after 90 or 180 days.  Depending upon how the plan is designed and how disability is defined in the policy, long-term disability may pay a monthly benefit for a specific number of years such as two years or until Social Security normal retirement age.

Should disability plans be fully insured or self-funded?

Long-term disability is typically fully insured, with the exception of extremely large employers who self-fund the benefit. For most employers, the cost is determined by employee demographics and industry classification. Claims experience isn’t a significant factor for most employers.

Whether or not to fully insure or self-insure a short-term disability plan is more complicated. Short-term disability plan rates are more driven by claim activity. Within the past decade, it has become popular to self-insure this benefit because firms feel their claims haven’t been substantial enough to warrant paying for a fully insured program.

In either funding arrangement, an employer shouldn’t administer its short-term disability program. Most employers aren’t equipped to assess when an employee is unable to perform his or her own job or when they’re able to return.  And, employers are estimated to pay out 30 percent more in benefits than if the plan was managed by a professional. It is possible to outsource the claim adjudication process to a qualified third party, often referred to as “advise to pay.”

How has life insurance changed and why is this coverage important?

A recent study found nearly 70 percent of U.S. workers, across all generations, believe having a life insurance benefit available at work is important. For many, it is the only life insurance they own. Group life insurance can fill gaps in coverage and the purchasing power of a group helps keep the coverage affordable for the employer.

Sixty-five percent of employees with group life coverage believe they need more life insurance beyond what their employer provides. Depending on the plan design and type and amount of coverage elected, employees may be able to buy additional life insurance without answering health questions. Some plans allow employees to purchase coverage on a spouse and/or dependent children. Buying life insurance at work is convenient because premiums can be paid through payroll deduction. When they leave the employer, people typically can choose to maintain coverage, paying premiums to the insurance company.

Employers should meet with a PTC CCG consultant. You likely will be surprised by the relative low cost involved in establishing or updating a program that can provide additional value to employees.

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