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Group Short and Long Term Disability Insurance. Course Objectives To provide an understanding of group disability insurance and the disability market.

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Presentation on theme: "Group Short and Long Term Disability Insurance. Course Objectives To provide an understanding of group disability insurance and the disability market."— Presentation transcript:

1 Group Short and Long Term Disability Insurance

2 Course Objectives To provide an understanding of group disability insurance and the disability market with particular emphasis on... –Sick-Leave –Short-Term Disability Plans –Long-Term Disability Plans –Voluntary/Worksite Plan

3 Top seven chronic conditions causing work limitations Society of HR Mgt, WorkplaceVisions; World Jea;tj Prgamozatopm 2001

4 Distribution of Coverage JHA Disability Fact Book 2003/2004 Edition 63.7% 64% 15% 21.3% 16.4% 19.5% Employer pays all ER and EE Employee pays all

5 The Current Market Position In a survey of business with 1-99 employees, 52% of the firms offered LTD and 48% offered STD Larger 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 firms JHA Disability Fact Book, 2003/2004 Edition

6 Self-Funded or Sick-Pay Plans Typically self-funded by the employer Often tied to tenure Usually capped at a certain number of work-days, ie., 10 days Almost always total only Needs to meet employers needs and coordinate with other plans

7 Common Plan Design Parameters Benefit: 60% or 66 2/3 % to $500 0/7/13 or 0/7/26 Non-occupation Family integration Short-Term Disability (STD) Plans

8 Common Plan Design Parameters Benefit: 60% to $6,000 90 or 180 day elimination period 2 year own occupation Zero day residual with partial Family integration 2 year mental and nervous Long-Term Disability (LTD) Plans

9 Own occupation typically 2,3,5 years or own occ to age 65 –Unable to perform all the material duties of own occupation on a full-time basis for selected # of years Any occupation begins after own occupation period ends –Unable 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/Any Occupation

10 Basic Monthly Earnings –With or without commissions and/or bonuses –12 or 24 month average W-2 Earnings S-Corporation Earnings Partnership Earnings Teachers Earnings Insurable Income Options

11 Workers Compensation Social Security Other Compulsory Group Disability Government Retirement Disability Employers Retirement Disability Unemployment Other Income Benefits

12 Social Security Primary only Primary and family Common Income Offsets

13 Primary Only LTD Benefit $4,600

14 Primary and Family LTD Benefit $4,250

15 401k plans and 403B plans VA benefits Profit sharing not funded by employer Thrift plans IRAs Tax sheltered annuities SOPs – stock ownership plans Retirement benefits No-fault auto insurance Income Not Typically Offset

16 Worksite Payroll –Simplified Issue –Individual –Optional Riders Group –Guarantee Issue –Participation requirements

17 Payroll Typically include individual, payroll deducted products Usually simplified issue with limited medical underwriting Portable Often with limited plan design, ie., benefit duration Often sold on an indemnity basis versus as a percentage of ones 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 employees covered monthly income 60 % of covered earnings Typically Guarantee Issue during the open enrollment and requiring Evidence if a late enrollee Usually require some minimum participation level Limited 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 period Can 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 DesignCore PlanCorePLUS Monthly Earnings$5,000$5,000 After-tax income$3,500$3,500 Benefit Plan50% to $5k60% to $6k Gross benefit$2,500$3,000 Taxable benefit$2,500$1,500 ($3kx.65) Benefit not taxed$0$1,050 Taxes (fed+state)30%30% Total Tax$720(2,500 x.30) $585(1,950 x.30) Net (after-tax) benefit$1,750(2,500-750)$2,415(3,000-585)

21 Core-Buy Up Options Benefit Duration – The employer purchases a plan with benefits payable for 2 years or 5 years and the employee purchases protection to age 65 Benefit 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 amount Elimination Period – Purchasing a lesser elimination period versus the employer provided plan, ie, buy down the e.p. from 180 days to 90 days

22 Group disability insurance is more necessary now then ever Most employees are living close to financial hardship and do not have the personal savings to withstand a work absence More options for providing disability plans to your employers and their employees exist then just a few years ago Your employer groups are looking for advice and counsel on plan design Final Thoughts

23 Questions?

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