Estimating The Cost Of Group Disability Insurance
Being partially or permanently disabled something people don’t often think about: the possibility of being disabled and unable to work. However, it is essential to think about such things, even if it is unpleasant if only to be prepared should an incident happen.
For instance, a Social Security Administration’s report shows that “one of every four 20-year-olds will become physically challenged before retiring.”
While this does not mean that each of these individuals will become permanently unable to work, the truth is that some will never reenter the workforce, or will have to change careers–and perhaps take a salary cut– to compensate for physical challenges faced.
Again, it is not always pleasant to consider, but as a business owner, you have even more responsibility to think about such things, both for yourself and your employees. The best thing you can do for your business and those who work for you is to offer the benefit of group disability insurance.
What is Group Disability Insurance and Who Needs It?
Disability Insurance (DI) should not be confused with Workers’ Compensation Insurance. Most states mandate Workers’ Compensation Insurance requiring employers with employees to have the coverage. An essential benefit to employees, particularly if your business involves physical, hazardous, or extreme work conditions.
While worker’s compensation insurance only covers injuries that occur on the job or “employment-related,” disability insurance covers illness or injury that occurs off the job.
Group disability insurance is explicitly a benefit that an employer can offer their employees. It can be provided in both short-term and long-term plans and covers all eligible employees no matter their health conditions.
The number of employees to whom an employer can offer this benefit is unlimited. DI coverage provides security should you, or your employees face an illness or job-hindering accident. Also, group disability insurance offers several advantages over individual policies, such as:
- More affordable premiums as group rates tend to be lower.
- Plan flexibility that allows you to build a plan based on your budget and your employees.’
- Flexibility for premium payments. Plans can allow you, your employee, or a combination thereof to cover premium payments.
Are All Policies The Same?
There is two basic policies – short and long term. Both short-term and long-term disability insurance covers an employee’s monthly salary up to a specific dollar amount. There are options to chose from within the policies as well. An example, the long-term may offer supplemental aid to help individuals return to work, such as training. Here is a more thorough breakdown of their offerings:
Short-term Disability Insurance
- Generally will replace up to 60-70% of the insured’s base salary.
- Depending on the policy details, generally pays for a period of a few months to a year.
- May include a waiting period between the time one becomes disabled and when benefits start paying.
Long-term Disability Insurance
- In general, it will replace up to 40-60% of the insured’s base salary.
- When the individual’s disability ends, the benefits end. May stipulate a certain number of years or benefits may last until retirement age.
- Typically has a waiting period before paid benefits start.
Also, some employers choose to offer additional coverage, or employees may want to take out an individual supplemental policy.
What Are The Costs?
While group disability insurance may seem priceless should it ever be claimed and benefits received, it is of interest to business owners to estimate the cost of offering this invaluable benefit. Because benefits are usually offered up to a fixed maximum determined by the plan, you may use an employee’s monthly salary to estimate premium cost.
Another way to estimate is to take the average cost of disability insurance into account, setting it at 1-3% of an employee’s annual gross income. An employee earning $150,000 a year can then reasonably expect to pay at a minimum of $1,500 annually on premiums.
When considering the benefits–such as protecting you and your family from income loss due to injury and its consequences–this price seems reasonable. The cost of insurance depends on the characteristics of the plan. Speaking with an experienced insurance agent is the best method to learn about your options. A knowledgeable trusted agent will know of reliable carriers who will prepare proposals.
Since 2010, Peter Green Insurance Agency LLC (PGIA) has provided businesses and individuals with “Asset Protection and Financial Security”™ by selectively using insurance coverages as a hedge against inherent financial risks.
Peter W. Green is the managing member of PGIA and a Certified Insurance Counselor (CIC). CIC is an internationally recognized designation awarded by The National Alliance for Insurance Education and Research to those who make the investment in dollars, time and study to gain a unique level of expertise.
Need answers to an insurance question? Have a specific insurance concern? Would you like a review of your policies prior to renewal? Call our office, 714-258-2800. Would you like to better understand disability insurance policy specifics? Call and ask for Peter. If you rather, contact Peter by email. Our agency offers a unique level of customer service rarely found today. Let’s talk.