Finding and keeping the right employees can be challenging for a small business. It can be difficult to compete with big company benefit packages, and employees often have to be able to fill more than one role. A voluntary long-term group disability plan is an affordable way to provide a valuable benefit.
How Voluntary Long-Term Disability Works
Voluntary group long-term disability insurance pays a monthly benefit when employees can't work because of injuries or illnesses. The plans are cost-effective and easy for employees to enroll in. For most groups there is no medical or financial underwriting during the enrollment period. It's important to remember that group disability covers non-work-related injuries and illnesses. Workers' compensation covers only work-related disabilities.
Voluntary group long-term disability insurance is purchased by the employee through the employer as part of a benefit plan. The plan pays a portion of the employee's salary, usually 60% to 70%. The benefits start paying between 90 days and one year after the employee's illness or injury and continue for two years or more. Group long-term disability can be integrated with a group short-term disability plan.
Voluntary group long-term disability benefits are income tax-free to the employee.
Why Offer Voluntary Long-Term Disability Insurance?
The risk of disability during working years is significant. It’s estimated that some 25% of today’s US workers 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.
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 long-term group disability plans are a tool to retain employees. When offered, it 's worth investing time to educate 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.
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Voluntary Long-Term Disability Cost
Insurance companies calculate rates for group disability based on:
- 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 both office workers and higher-risk positions.
- Demographics: The number, age ranges, gender, and income ranges of your employees will affect the rate. Larger groups pay less per employee than smaller groups. Groups that are younger pay less than groups that are older.
- Location: Different areas of the country experience different claim rates.
- Participation: Plans that 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.
So different types of businesses and plan designs will have different rates. The bigger picture, however, is the difference between individual and group plans. A group voluntary long-term disability plan makes coverage much more affordable. The average cost of group long-term disability in 2018 was $271 per employee per year. Compare that to the average individual disability policy premium sold in 2019 of $1,349.
Ways to Reduce the Cost to Employees
Group disability insurance is a very flexible benefit. Employers offer it voluntarily, so there are no mandated benefits. The cost to the employee can be managed in several different ways.
- Length of benefit: Employers can select benefit periods for long-term disability ranging from two years to when employees reach age 65. The longer the benefit, the higher the cost. Employers can also select elimination periods of 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.
The Value of a Benefits Review
Finding and keeping good employees is important to the success of your business. Whether you have a benefits package in place, or are just starting to think about it, an independent insurance agent can help. A comprehensive benefits review can identify ways to reduce cost and to get the most value out of your plan.
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