It’s no secret, to stay competitive in today’s marketplace, businesses have to attract and retain the best talent. And to do that, businesses of all sizes have to offer robust benefits packages, including health, life, retirement benefits and other options in competition for good employees.

And more and more business owners are offering disability insurance as part of their benefits packages.
Not only because it’s suitable for the employees, but it’s good for the business.

What is Disability Insurance?

Disability insurance provides financial protection in the event you become disabled or otherwise physically unable to perform your job duties for a specified time.

Disability policy replaces a portion of income (usually between 40 and 60% of the insured’s income) during that period. Depending on how the insured qualifies and based upon specific rules as to what’s considered a disability.

Short Term vs. Long Term Disability

Short term disability (STD) is typically three to six months. While long term disability (LTD) covers a portion of a worker’s salary for a more extended period (usually over six months). Some employers offer both types of coverage to their employees.

Why Every Business Owner Should Offer Disability Insurance Benefits

Statistically, SSA study indicates one in four 20-year-olds will become physically challenged before they retire. According to the National Association of Insurance Commissioners, a 35-year-old person has a 50% chance of being struck down by disability by the time they reach 65.

In a partnership of two 35-year-olds, the odds of a disability lasting three months or more before the age of 65 jumps to 75%.

With numbers like those, it’s easy to see why business owners should strongly consider purchasing coverage for themselves and their employees. Because without it, they could be jeopardizing the health— and even viability — of their organization if a disabling illness or injury strikes a key employee or executive— or them.

Employer Advantages – Tax and Retrain

Tax savings may be available if an employer takes pre-tax company-paid premiums as a tax deduction, which is attractive to many business owners.

Some disability insurance policies carry a rehabilitation provision, which covers the cost of retraining employees (or business owners) who are not able to return to the same duties following a disability, which can be hugely valuable.

Business Owner Choices

An owner may choose a plan that waives premium payments for the duration of a disability for policyholders who remain disabled past the period specified in the policy. And some policies even pay benefits when insured is hospitalized for a specified period. If an owner has a long-term disability, this can be incredibly helpful.

Still, others may provide a full or partial reimbursement for accumulated premium payments at age 65 (provided the insured has never used the benefit).

Disability insurance is one of the most overlooked forms of coverage when it comes to small business planning. But owners who aren’t indemnifying themselves against the possibility they (or a partner or a key employee) could become disabled for a short or long period are just asking for trouble.

Tax savings may be available if an employer takes pre-tax company-paid premiums as a tax deduction, which is attractive to many business owners.

If an insured is unable to perform prior duties, a rehabilitation provision will provide funds to retrain the insured.

Advantages of Group Plans

Generally, with a group disability plan, employers can design a plan to fit their budget, and that works within their employees’ needs.

Although anyone can apply for individual coverage, most group policies are tied to employment, so if an employee loses his or her job or changes employers, the coverage is not portable (meaning, they can’t take it with them). However, some plans offer portability depending on the plan design.

In terms of paying premiums — employers, employees, or a combination of both, with either pre- or after-tax dollars, employers often chose group plans due to their flexibility.

As with other benefits options, offering plans like this can both attract the best talent and boost employee retention rates.

Advantages for Employees

Guaranteed issue group benefit plans give employees the option to purchase coverage regardless of their current health condition, which can be hugely attractive for many.

And while the cost of group coverage can change from year to year, the premiums are generally much lower than those of an individual plan policies. So if an employer passes on those savings, employees paying into a plan would see fewer dollars deducted from their paychecks each pay period.

What About Social Security Disability?

The Social Security Administration provides disability insurance (SSDI) for those who’ve paid into the Federal Insurance Contributions Act (FICA). Not everyone may meet the strict qualification requirements. Specific regulations dictate you must be disabled for an undefined period after your disability onset date before receiving SSDI cash payments.

Employer-sponsored long-term disability policies usually integrate benefits with SSDI. Some employers design their plan to reduce benefits dollar for dollar based on any additional benefits received. Others choose to pay a higher policy premium to ensure benefits would be paid at the same rate, regardless of whether any other benefits are received.

Either way, an employer-sponsored disability insurance plan could mean the difference between staying afloat and sinking, in the event the unexpected happens.

Know the Terms & Definitions

Terms and definitions in a disability policy are critical in understanding coverage options.

Many times, disability claims are due to an illness or a condition that isn’t readily apparent (think muscular, skeletal, or mental health problems) as opposed to, say, an accident. So determining who qualifies can be tricky. And some contain specific language concerning mental or emotional issues.

Also, while the general definition of disability insurance is “covers income when you can’t perform within your occupation,” some policies define it as the inability to work in any profession. And some plans switch from “own occupation” to “any occupation” if a claim lasts longer than a specified period (e.g., two or five years).

So, it’s an excellent idea to read the small print and work with an experienced insurance professional who can help guide you through the language. The fact is, disability claims can be complicated and so generally take more time to resolve than claims against life or health insurance.

Group Short Term v. Long Term Benefits

Group short-term (GSTD) benefits generally vary in the dollar amount they’ll pay with some paying as much as 100% of earnings immediately after a short elimination period. And many group long-term (GLTD) coverage has a 90 day elimination period (or longer), and are generally limited to 50-60% of base salary (some with caps on monthly benefits).

Get the Help You Need

Purchasing the right coverage and provisions is crucial. Navigating policy language and claims processes for short and long-term disability insurance can be challenging.  Group long term disability plans are highly customizable, adding an extra layer of complexity.

Attracting and maintaining top talent, providing current employee reassurances that you care and smartly to provide for you and your partners are solid reasons to obtain disability protection.

Peter Green, is a Certified Insurance Counselor (CIC), managing member of the Peter Green Insurance Agency LLC, has the experience and knowledge to provide the guidance you need with a unique level of customer service rarely found anywhere else. Let’s talk.

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