Disability Coverage 101 for Business Managers
Lengthy periods of disability can be financially devastating to workers and their families. Protection against that risk lies in disability insurance, which provides income to employees when they become sick or injured, and unable to work. It protects workers and their families by helping to meet daily expenses.
Providing disability insurance coverage for employees is valuable for filling gaps in financial protection not covered by public disability income assistance programs such as Workers’ Compensation and Social Security Disability Insurance (SSDI). Some employers say it’s a way to offer competitive benefits that attract and retain talented employees. Disability insurance is a real advantage, especially for small- to mid-sized businesses, helping them manage time lost to disability so workers can return to productivity.
Employer-sponsored disability insurance provides income replacement for employees to pay bills — such as for mortgages and college expenses — and to maintain their standard of living. Employers can choose from short-term or long-term disability coverage, or integrate the two.
Short-term typically covers 60 percent of pre-disability income once sick leave is exhausted, and lasts no more than six months. This is useful for pregnancies, strains and sprains. Long-term continues from five years through the rest of your employee’s lifetime — here, think catastrophic illness or injury, heart disease, diabetes, or musculoskeletal and connective tissue conditions.
Workers’ compensation covers lost income and medical expenses when injuries or illnesses happen at work. Today, though, 63 percent of all disabling injuries and illnesses occur outsideof work, says the National Safety Council. Thus, for higher levels of security against unforeseen expenses, disability insurance is the go-to choice.
State and federal government steps in with financial help, but this is often inadequate for a family’s needs. The average monthly benefit from the SSDI program in 2015 was $1,129.70, according to the Social Security Administration. But it’s difficult to qualify; waiting time to receive benefits is two to three years because of an application backlog. The standard to qualify for SSDI is more stringent than for private plans. While SSDI says the person can’t engage in any substantial gainful work, private coverage defines disability as inability to do one’s own occupation or one that matches training, education and experience.
SSDI and state-funded programs can be considered the most basic safety net. However, in most cases, they don’t provide adequate financial support to maintain a worker’s pre-disability standard of living.
Disability insurance can be looked at as both a benefit and a health and productivity tool, relieving huge direct and hidden costs of disability — pay for replacement workers, for example. A study by the Work Loss Data Institute shows that the total cost of disabilities eclipses medical insurance costs for businesses. Especially in small businesses, the absence of a key employee can have a huge impact on productivity and how the firm continues to run.
You can choose to offer protection through a combination of employer and employee contributions. In fact, half of establishments with 100 or more employees offer short-term disability insurance, while 43 percent turn to long-term, according to the Department of Labor’s National Compensation Survey: Employee Benefits in Private Industry. The percentage of small businesses with disability plans is considerably less.
You can consider that you also are protecting yourself and your own family from disability costs by using group rate coverage. Insurance can be provided for roughly $300 to $450 per employee in annual premiums as a benefit fully paid by the employer or cost-shared with the employee, or offered as an employee-paid voluntary benefit. One idea on how to choose the right carrier is to look at how successful it has been in helping people return to productive work — information that is often available through online access. Also, look at how well the plan works with and transfers information from prior health plans and how well it will coordinate with your other benefits.