1. Chapter Eight – Group Disability
Goal is to replace lost income due to sickness or accidents
1 out of 10 employees is disabled before 65 years
More likely to be disabled for > 90 days than die
Impact is more severe due to ongoing costs
Employers less likely to provide coverage

2. Types of Plans Short term benefits (usually < 6 months) Long-term
Must coordinate to avoid lapses in coverage and with social security

3. Sick Leave Plans (Salary continuation)
Uninsured by definition
Eligibility: full-time, short (1-3 months) probationary period, tax credited to specific classes
Benefits: 100% of salary, but may be reduced – certain numbers of day each year; carryover varies between firms; coordinated with social insurance benefits; proof of disability required if lasts more than one week

4. Insured Disability Income Plans
Similar to group term insurance plans
Short term plans may cover all employees or wider range of employees; could be just for union employees
Long-terms plans often limited to salaried staff as they are less likely to have adequate benefits under social security; there are also fewer claims than hourly employees

5. Insured Disability Income Plans
Probationary periods
Short term plans = 0 to 90 days
Long term plans = 91 days to one year
Short-term disability is the total and continuous inability to perform any and every duty of regular occupation

6. Insured Disability Income Plans
Long-term disability has several variations
(a) Some are same as short term definition
(b) Some are restrictive and require inability to engage in any and every occupation for which employee is qualified or can get qualified for through education, training, and experience
Most plans use (a) for 24 or 36 months and (b) thereafter
Some plans have an earnings test; benefits paid if disability results in specified drop in earnings, such as 50% or more

7. Benefits Short-term plans – common provisions
For non-occupational disabilities
Benefits equal to flat amount or percentage of salary (50-100%)
Waiting period of 1-7 days for sickness, 0 for accidents
Benefit duration of weeks
Coordinated with social insurance if occupational disabilities covered

8. Benefits Long-term plans – common provisions
For both occupational and non-occupational disabilities
Benefits are 30-70% of earnings
Monthly maximum of $1,000 - $5,000
Waiting period of 30 days to one year, 6 months common
Benefits duration 2 years to life
Benefits duration often decreases for disabilities after age 60 or 62 (as you would be about to retire anyway)
Coordinated with social insurance

9. Supplemental Benefits
Supplemental benefits (employees can purchase benefits above those provided
Can carve out benefits for executives and provide them with a more liberal plan
Provide additional benefits to executives under individual policies rather than group policy

10. Other Contract Provisions
Claims – must notify insurer within days
Proof of loss must be filed within 90 days of start of disability
Periodic verification required for ongoing disabilities
Payment of benefits occurs after proof of loss, generally direct to employee

11. Rehabilitation Becoming more common to control costs
Works best with early intervention
In long-term contracts generally
Allows trial work period without complete reduction in benefits to see if it will work out
May include benefits for therapy and training

12. Termination Conversion privilege rarely provided
Benefits continue for disabled employees who are receiving benefits when master contract is terminated
Some plans have a COLA, based on CPI
Some plans make contributions to pension plans
Some plans continue benefits to survivors of disabled employees, usually 2 years or less

13. Federal Taxation Employer contributions are tax deductible
Employee contributions are NOT tax deductible
Employer contributions are not creating taxable income to employees
State tax varies and may be more favorable to employees

14. Federal Taxation Fully-contributory plans – no tax
Partially-contributory plans
benefits allocated to employee and employer
contributions and are taxed accordingly
Noncontributory plans
Included in income
But, employee may be eligible for tax credit