Presentation on theme: "Group Short and Long Term Disability Insurance"— Presentation transcript:
1 Group Short and Long Term Disability Insurance Today we are going to discuss two of the most common methods for an employer to provide disability insurance on their employees Group short and long-term disability. We are going to focus on the need, but also look at variations available that might help you help your new and existing clients.
2 Course ObjectivesTo provide an understanding of group disability insurance and the disability market with particular emphasis on . . .Sick-LeaveShort-Term Disability PlansLong-Term Disability PlansVoluntary/Worksite PlanHere is what we will focus on today.
3 Top seven chronic conditions causing work limitations This list demonstrates the top disabilities causing work absences. This list has changed dramatically over the last decade, with mental illness showing the most dramatic growth.Society of HR Mgt, WorkplaceVisions; World Jea;tj Prgamozatopm 2001
4 Distribution of Coverage Employer pays all64%63.7%ER and EECurrently, across all sizes of employer groups, the percentages look like this.15%16.4%Employee pays all21.3%19.5%JHA Disability Fact Book 2003/2004 Edition
5 The Current Market Position In a survey of business with 1-99 employees, 52% of the firms offered LTD and 48% offered STDLarger groups (500+) are more likely to offer disability benefits vs smaller employers (<100 ees)LTD: 90% vs 77%STD: 84% vs 62%Manufacturing firms are more likely to offer STD (70% vs 55%) then LTD (61% vs 71%) then non-manufacturing firmsA huge market in the smaller size groups, 2-9 and exists. Also, note that if a company is to provide one or the other, most will provide some form of short-term disability.JHA Disability Fact Book, 2003/2004 Edition
6 Self-Funded or Sick-Pay Plans Typically self-funded by the employerOften tied to tenureUsually capped at a certain number of work-days, ie., 10 daysAlmost always ‘total only’Needs to meet employers needs and coordinate with other plansMost employers have some form of sick-pay program. These are especially prevalent in the blue and gray-collar marketplace. Most plans have limits on the accumulation and are self-administered by the employer.
7 Short-Term Disability (STD) Plans Common Plan Design ParametersBenefit: 60% or 662/3 % to $5000/7/13 or 0/7/26Non-occupationFamily integrationCommon plan designs
8 Long-Term Disability (LTD) Plans Common Plan Design ParametersBenefit: 60% to $6,00090 or 180 day elimination period2 year own occupationZero day residual with partialFamily integration2 year mental and nervousAgain, common plan designs. You will see higher maximum caps, especially in physician and attorney groups. Additionally, larger employers will often have higher maximums. A common rider is to have a longer “own occupation” definition on a class basis, usually confined to white-collar and/or professionals.
9 Own/Any OccupationOwn occupation typically 2,3,5 years or own occ to age 65Unable to perform all the material duties of own occupation on a full-time basis for selected # of yearsAny occupation begins after own occupation period endsUnable to perform the duties of own or any other occupation for which person is fitted by training, education, experience, age and physical and mental capacity“Own Occupation” provides more protection for the protected class then an “any occupation” definition. Typically found in white collar and executive groups or on a ‘carve out’ basis, this definition provides the highly skilled employee the ability to protect his or her occupation, but will offset if and when they work on a partial basis or in another occupation. Often the “own occ” is perceived to lessen the pressure to take the first job opportunity available and attempt to return to their prior occupation.
10 Insurable Income Options Basic Monthly EarningsWith or without commissions and/or bonuses12 or 24 month averageW-2 EarningsS-Corporation EarningsPartnership EarningsTeacher’s EarningsThe issue of ‘earned income’ and ‘covered income’ are very important, especially in the group contract. Anyone with variable compensation, such as bonus or commissions, needs to know if that income is covered and how the calculation is performed. Additionally, the form of income and the form of business entity can effect the taxable status of the benefit.
11 Other Income Benefits Workers’ Compensation Social Security Other Compulsory Group DisabilityGovernment Retirement DisabilityEmployer’s Retirement DisabilityUnemployment
12 Common Income Offsets Social Security Primary only Primary and family Social Security is probably the most commonly thought of offset for group long-term disability. The two available definitions are ‘primary’ and ‘primary and family’ offsets. This is how they work.
15 Income Not Typically Offset 401k plans and 403B plansVA benefitsProfit sharing not funded by employerThrift plansIRAsTax sheltered annuitiesSOPs – stock ownership plansRetirement benefitsNo-fault auto insuranceWhile Social Security or earned income while on partial or residual claim can offset the benefits payable, the following list will seldom reduce the benefits payable from group contracts.
16 Worksite Payroll Group Simplified Issue Individual Optional Riders Guarantee IssueParticipation requirementsOver the last decade, voluntary and payroll products, sold on a voluntary basis in the workplace have exploded. Both products have advantages. The real point of the slide is to ensure you are looking at each of your employer groups and are aware that various options to supplement the employer plans exist. The need for the employee is great and ever increasing. Voluntary plans are likely to continue to grow due to the higher medical premiums and pressure on employers to limit the growth in the benefits costs.
17 Payroll Typically include individual, payroll deducted products Usually ‘simplified’ issue with limited medical underwritingPortableOften with limited plan design, ie., benefit durationOften sold on an ‘indemnity basis’ versus as a percentage of one’s income ($500 per month)
18 Group Voluntary Typically a group chassis, with age-brackets Premium is calculated by taking the rate (either age-bracket or composite) times the employee’s covered monthly income60 % of covered earningsTypically Guarantee Issue during the ‘open enrollment’ and requiring Evidence if a late enrolleeUsually require some minimum participation levelLimited portability
19 Core-Buy Up Increasingly popular option Employer purchases a base plan and allows the employee to ‘buy-up’ on a voluntary, payroll deduction mode‘Buy-ups’ can include benefit duration, benefit amount, elimination periodCan help stabilize the employees cost and allows the employee to purchase on a group basis with price breaks and guarantee issue
20 Core-Buy Up Sales Example Benefit Plan Design Core Plan CorePLUSMonthly Earnings $5,000 $5,000After-tax income $3,500 $3,500Benefit Plan 50% to $5k 60% to $6kGross benefit $2,500 $3,000Taxable benefit $2,500 $1,500 ($3kx.65)Benefit not taxed $0 $1,050Taxes (fed+state) 30% 30%Total Tax $720(2,500 x .30) $585(1,950 x .30)Net (after-tax) benefit $1,750(2, ) $2,415(3, )This example demonstrates the positive effect of the buy-up option to the employee and the marked increase in spendable dollars to the employee.
21 Core-Buy Up OptionsBenefit Duration – The employer purchases a plan with benefits payable for 2 years or 5 years and the employee purchases protection to age 65Benefit Amount – The employer provides a limited benefit amount, ie., $1500/month and the employee purchases a higher maximum, ie., $5000/month using after-tax dollars thus creating a federal income-tax free benefit for the higher amountElimination Period – Purchasing a lesser elimination period versus the employer provided plan, ie, buy down the e.p. from 180 days to 90 daysOptions available to the employees in a Buy-up plan include the following and can allow the employee a great deal of personal choice while allowing the employer to provide a base plan which will provide for all the employees. Personal choice can be perceived as a positive, but provide some rate relief from ever increasing costs associated with employer provided benefits.
22 Final ThoughtsGroup disability insurance is more necessary now then everMost employees are living close to financial hardship and do not have the personal savings to withstand a work absenceMore options for providing disability plans to your employers and their employees exist then just a few years agoYour employer groups are looking for advice and counsel on plan design