The Value of Disability Insurance to Employers and their Employees
Companies in Maine and across the country face the challenge of rewarding employees and this struggle rose to the surface significantly during the pandemic. Striking the balance between a workable company budget and the satisfaction of the company’s human capital is critical.
This article was written by Sherree L. Craig of Allen Insurance and Financial.
One of the most affordable and valuable forms of financial protection for employees is disability insurance. Offering a disability plan emphasizes a company’s commitment to the health and financial well-being of its workforce, providing employees with an income when recovering from an accident or an illness. An employee can recover peacefully without the burden of worrying where the next paycheck might be and allows them to place their focus on immediate medical needs.
In addition to being a deductible business expense, this offer could have an impact on the company’s workers’ compensation status. Once an employer sponsored disability plan is purchased, conversations with business insurance and accounting partners should take place.
Disability insurance is designed as short-term and/or long-term policies.
The short-term disability benefit is paid weekly. Pricing for the group plan is determined by the design of the contract and the group demographics (age, wages, industry). The following are some plan design considerations:
> How many days will the employee be disabled before the payments begin? One frequent plan design option is the first day following an accident and the eighth day following an illness. We see these go as high as two weeks, which would keep the costs exceptionally low, but could come at the expense of the employee’s satisfaction.
> How long will the payments last? Options typically are 13 weeks or 26 weeks.
> What percentage of earnings will be replaced? Disability insurance does not normally cover full replacement. Insurance theory dictates that full replacement might encourage malingering – an incentive to remain disabled and not return to active capacity as soon as they are able.
Like the short-term disability, long-term disability policies are priced on the demographics of the company and design of the plan. The long-term disability benefit is paid monthly rather than weekly, and the elimination period (the length of time from the start of the disability until payment begins) can be dovetailed to start at the end of the short-term disability benefit. The benefit period may depend on the company size but should be designed to last a minimum of five years or all the way to the normal social security retirement age.
A group disability package has the added advantages of group pricing and are free from medical underwriting, making the plan simple to establish and administer.
Curious to see how your benefits stack up against other employers in your industry and community? Principal insurance has a great benchmarking tool.
Established in 1866 and serving clients in Maine and worldwide, Allen Insurance and Financial is an independent and employee-owned insurance and financial services agency with offices in Camden, Rockland, Southwest Harbor and Waterville. Call 800-439-4311. AllenIF.com