Group Short and Long Term Disability Insurance

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Group Short and Long Term Disability Insurance
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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

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Top seven chronic conditions causing work
limitations
Society of HR Mgt, WorkplaceVisions World
Jeatj Prgamozatopm 2001
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Distribution of Coverage
Employer pays all
64
63.7
ER and EE
16.4
15
Employee pays all
19.5
21.3

• JHA Disability Fact Book 2003/2004 Edition

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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 (lt100
  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
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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

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Short-Term Disability (STD) Plans

• Common Plan Design Parameters
• Benefit 60 or 662/3 to 500
• 0/7/13 or 0/7/26
• Non-occupation
• Family integration

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Long-Term Disability (LTD) Plans

• 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

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Own/Any Occupation

• 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

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Insurable Income Options

• 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

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Other Income Benefits

• Workers Compensation
• Social Security
• Other Compulsory Group Disability
• Government Retirement Disability
• Employers Retirement Disability
• Unemployment

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Common Income Offsets

• Social Security
• Primary only
• Primary and family

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Primary Only

LTD Benefit 4,600
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Primary and Family

LTD Benefit 4,250
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Income Not Typically Offset

• 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

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Worksite

• Payroll
• Simplified Issue
• Individual
• Optional Riders
• Group
• Guarantee Issue
• Participation requirements

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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)

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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

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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

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Core-Buy Up Sales Example

• Benefit Plan Design Core Plan CorePLUS
• Monthly Earnings 5,000 5,000
• After-tax income 3,500 3,500
• Benefit Plan 50 to 5k 60 to 6k
• Gross benefit 2,500 3,000
• Taxable benefit 2,500 1,500 (3kx.65)
• Benefit not taxed 0 1,050
• Taxes (fedstate) 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)

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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

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Final Thoughts

• 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

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Questions?