Providing disability insurance for your employees is a great way to protect them and keep them happy. But is it expensive? And how can you get the best price without sacrificing protection? The good news is that group disability plans don't have to cost much, and an independent insurance agent can help.
An independent insurance agent can show you what's available in the market that fits your budget. They’ll help guide you through all your options, weigh the good and the bad, and even see you through it all from start to signature. But first, here's a bit of background on costs, including how they're created and tips to make sure you get the best price for you.
How Much Do Group Disability Plans Cost?
The average cost of long-term group disability in 2018 was $279 per employee, and short-term disability was $223. When it comes to pricing, it's the risk that determines the cost. The riskier your employees' needs, the higher the premiums — and vice versa. This is all affected by:
- Industry: The insurance company will charge based on the business you're in and the activities of your employees. Employers with only office workers will have a lower rate than employers with office workers and higher risk positions.
- Demographics: The size, age ranges, gender, and income ranges will affect the rate. Larger groups pay less per employee than smaller groups. Groups that are younger will pay less than groups that are older.
- Location: Different areas of the country experience different claim rates.
- Participation: Plans that are employer-paid or have high participation rates tend to have better claims experience than groups that have low participation rates.
- Experience: Insurance companies will consider the disability experience of the group if it is large enough.
- Plan Design: Plans with more generous benefits have more risk than plans with a more modest design.
The insurance company will adjust the price of the plan premiums annually.
Ways to Reduce the Cost of Long-Term Group Disability Insurance
Long-term group disability insurance is a very flexible benefit. Employers offer it voluntarily — there are no mandated benefits. The cost of the benefit to the employer can be managed in several different ways.
- Length of benefit: Employers can select benefit periods for long-term disability ranging from two years to an employee aged 65. The longer the benefit the higher the cost. Employers can also select elimination periods from 30 days to one year or more. The longer the elimination period the lower the cost.
- Benefit integration: Employers can offset the benefit by any Social Security or workers' compensation payments.
- Cost sharing: Employers can pay all or a portion of the benefit.
- Participation: Groups with high participation rates will have a lower cost. Employer pay-all plans have lower rates because the participation rate is 100%.
Why Offer Long-Term Group Disability Insurance?
The risk of disability during working years is significant. It’s estimated that some 25% of today’s US workers aged 20 to 50 years old will become disabled before the age of 67. A serious injury or illness can be a challenge for both employees and business owners. Employees need to focus on getting well. Along with physical and emotional issues, financial concerns can make recovery more difficult.
Business owners have to grapple with pay and workload issues. After sick and vacation time is used up, how long will the employee be paid? Replacing seasoned employees can be costly. The cost can be as much as 33% of salary according to one study. A group long-term disability plan can help solve that problem.
Long-term disability plans can help employers manage the difficult human resources problems that arise when an employee is out for an extended time because of illness or injury. Many plans offer additional benefits to assist the employee in returning to work.
Group long-term disability plans are a tool to keep employees. When offered, it is worth spending some time educating employees on the risk of disability. The insurance company will usually provide materials to help employees understand how important disability insurance is to their financial health.
Voluntary plans are available for long-term disability plans. Employees pay the premium and choose to take part. One reason to consider voluntary plans is that the benefits paid are tax free.
Voluntary plans have no out-of-pocket cost for the employer. The value provided to the employee is easy and inexpensive access to coverage.
Voluntary plans can also offer additional flexibility as supplementary long-term coverage above the basic amounts offered.
Group Long-Term Disability Insurance for the Self-Employed
A small business can also offer group long term disability plans. Small group disability plans are available for as few as two people. These plans will have fewer options and lower benefits, and they may also need some medical and financial information of participants.
Other Added-Value Features to Consider in Your Group Disability
- Work incentive benefits: Work incentive benefits pay more to return to work while participating in a rehabilitation program.
- Worksite modification benefits: This feature pays for modifications of work stations or more equipment.
- Employee assistance programs: This provides support for employees who may be facing difficult issues. Family crisis, addictions, and depression are common issues.
- Retirement contribution coverage: This pays for contributions to the employer’s retirement plan.
- Emergency travel assistance: This pays for hospital and emergency evacuation while traveling.
Paying for Group Disability Insurance
An attractive feature of group disability is that it's easy for both the employee and employer. The insurance company and/or plan administrator will work with the employer to set up payroll deductions according to the plan. Cost sharing between the employee and employer are usually easy to accommodate.
The taxation of disability benefits is based on who pays the premium. If the employer pays the premium, the employee pays tax on the benefit. If the employee pays the premium, the benefits are not taxable. Premiums paid by the employer are tax deductible.
Benefits of an Independent Insurance Agent
Experienced and productive employees are an important asset to your business. A group disability plan can help you keep them and an independent insurance agent is just the answer you need to make it all happen.
Independent insurance agents are experts at helping make sense of the ins and outs of all types of disability insurance and other forms of business protection. They have access to multiple insurance companies, ultimately finding your company the best coverage, accessibility, and competitive pricing while working entirely for you. And in the end, you'll be all set with the perfect long-term disability to match your company's needs, goals, and budget.
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Statista 2018 US Group Disability Market Survey
Work Institute 2018 retention study
Unum Disability Statistics
Advisors Guide to disability Insurance David Watros