As a benefits industry expert, you know the story. Bright, driven business owner follows dream, works hard, creates opportunity and inspires others. That's the easy part, the part of the story we all like to talk about. What we avoid thinking about is what happens when the bright, driven business owner or one of his or her key employees becomes hurt or ill and there are not resources in place to keep the business going.
It is incredibly frustrating to hear about businesses that fail due to lack of disability planning. It goes without saying that simple -- and many times affordable -- courses of action can help businesses keep moving when critical employees are unable to work due to illness or injury. In this industry, it's our job to be compassionate before catastrophe strikes. We have to be one step ahead of the threats that could hurt our clients' livelihood.
According to the U.S. Bureau of Labor Statistics, less than one-quarter of workers in small private firms have short-term disability coverage and only 13 percent have long-term disability income insurance. Small employers -- with five to 100 employees -- are greatly misinformed about the likelihood of a worker suffering a serious disability between the ages 35 and 65.
Only 10 percent of employers surveyed for the 2001 Life Insurers Fact Book knew the actual likelihood. Nearly half of the respondents significantly underestimated the risk of suffering a disability, reporting a 1 in 50 chance.
Clearly, as an industry, we have some educating to do.
What your clients don't know could cost them
Government programs such as Social Security and workers' compensation do offer disability resources. But, your clients cannot assume these benefits will cover their personal needs or those of their employees.
Consider these facts:
- Ninety percent of disabilities are caused by off-the-job injury or illness, for which workers' compensation is not applicable, according to the National Safety Council.
- As of December 2004, the average monthly Social Security disability payment was $965, based on Social Security Administration numbers. This will present an income shortfall if this amount is less than what your client or an employee needs to cover expenses.
- Two out of three persons who apply for Social Security disability benefits are initially rejected -- again, according to the Social Security Administration's own data. Waiting times like these delay access to needed funds.
- Additionally, disability is 16 times more likely than death to cause a home foreclosure, according to a number of industry associations.
Most employers initially seek disability coverage to position themselves as an attractive employer. After initial research, many employers are surprised to learn how affordable disability coverage actually is and how much more it offers than just a recruitment advantage. The average cost per employee per year is about $200, according to JHA 2005 U.S. Group Disability Market Survey. In most cases, this seems like a very small price to pay when you see how the resources complement medical and paid-time-off benefits.
Disability coverage not only sustains owners and employees from a household management standpoint, it also frees the employer from the administrative and regulatory compliance expenses associated with an employee's inability to work. It's critical all employer clients understand the value of what they pay for and how a disability insurance carrier can partner with them in times of uncertainty. You can't put a price tag on that.
Communicating the nuances of disability coverage can be complicated. Discussing qualifying periods and benefit maximums, depending on the plan type can be overwhelming for clients. Be patient and seek out resources from the carrier. The carrier you work with should have all the material you need to support these important discussions. Ask your carrier for help with presentations, brochures and additional materials related to plans and plan enhancements.
Use this checklist to make sure your clients understand the following points during your short- and long-term disability discussions.
Definition of disability: There are various ways to qualify for disability benefits, but most group policies contain a test for loss of occupational duties or a loss of earnings, or a combination of the two tests.
Qualifying periods: Disability benefits normally begin after a specified period of time, called a qualifying period or elimination period. Short-term disability qualifying periods are usually defined by a number of days, such as seven or 14. Long-term disability qualifying periods are typically expressed in months, with three and six months being most common.
Level of income replacement: Disability benefits are meant to replace part of the employee's salary, not all of it. Typical benefits are normally 60 percent or 66 2/3 percent of pre-disability earnings.
Duration: Disability plans generally are limited to a maximum length of time, typically ending when an employee reaches age 65 or Social Security Normal Retirement Age. Shorter duration plans are also available, for example, two years or five years.
Funding: Group disability plans can be paid for by the employer, by the employee, or a combination of the two. The employee's tax liability for the benefit is determined by who pays the premium. Employer-paid plans allow the employer to provide the coverage for the employees. Voluntary programs give the employee the choice of purchasing valuable income protection at no cost to the employer other than for plan administration.
Rehabilitation programs: Many carriers build rehabilitation plans into their disability income policies. These plans provide assistance in getting claimants back to work, helping employers retain valuable employees.
Champion the issue
As a benefits industry expert, you are a critical link to help change the way employers and employees look at the need for disability.
It is difficult to show clients how the "what if" affects their business and household, but by doing so, you help your client ensure long-term sustainability and position them well for future success.
