Group Disability FAQs for an Employer

Here is a collection of questions often asked relating to employer sponsored non-medical/group life & disability income insurance.

Q: How important is it to offer benefits other than medical to my employees?

A: Real important. Employees are not buying adequate life and income protection insurance on their own. They do not have ready access to advisors or products. They look to their employer to offer the coverage regardless of who pays for it. As an employer in today's economy, you need to retain and recruit quality employees. Benefits will always be an important part of that process. Company have more tax advantages in acquiring there benefits over what individual employees can buy. Plus group benefits have price advantages as well.

Q: What if I want to discriminate in my offering among my employees?

A: Basically you should treat all employees equally. However, with proper product design a business can discriminate by "class" of employees. A business could provide different level of benefits to all "managers". The classification should not be based on ownership of the company such as "owners", use "executives" or "managers" or "hourly" and "salaried".

Q: What is the proper level of benefits? How much coverage should the plan offer?

A: This is an individual question based on checkbook and desire to provide for your employees. It is also a question of philosophy and objectives of the business. In today's economic enviroment, costs are being shared with employees in many products. Do you want to promise to care for your employees from cradle to grave? Or offer a good base of benefits that the employees can add to by purchasing additional life, disability or long term care on their own. You can offer excellent cost advantaged individual insurance products, often on a tax favored basis to your employees.

Some examples:

Group Life Insurance - A business can offer practically any amount of life based on income, a flat amount, by job classification or a combination. For example a business could offer 1X income to $50,000 or $100,000 on salaried, $50,000 on managers and $25,000 on all other employees. Most plans I have on the books are a function of income. And most of them are 1X income to $50,000. Read the section I have on group life for more details on why the $50,000 amount.
Group Disability (Short Term and Long Term. For more information click here.) -The business must elect a percentage of income and a maximum amount of weekly (STD) or monthly (LTD) benefit to establish a plan. Here the business checkbook might be a key factor as well as the number of employees and insurance company rules. It is common to set a short term disability level at 60% of income to $1,000 a week of benefit. Groups with fewer than 10 employees have less choice then those with more than 10. Long term disability is usually up to 60% of income to a maximum monthly benefit of $5,000. If the employees need more than the plan provides, give them the option to add onto that amount with a convenient payroll deduction plan.
Long Term Care - A new plan growing in popularity that can be pure group or individual. It can be designed very similar to long term disability. A business can pay for a base amount and provide a buy up. Or a business could make this plan 100% contributory (employee paid).

Q: Tell me about the the options on paying the premiums, what are the rules?

A: The number of employees will affect the options. Fewer than 10 employees require 100% employer paid life and disability. Plans with more than 10 employees can be:

All employer paid (noncontributory)
Premiums shared by the employer and employer (contributory)
Fully Paid by the employee (contributory)

The cost of the disability coverage per $100 a month of benefit is higher on contributory plans than noncontributory. The reason is anti-selection against the insurance company. People who elect to take it are more likely to have claims than if everyone gets it because the employer is paying 100%. My experience has been that an business should offer at least some base amount of disability that is 100% employer paid. Even if the benefit amount is 50% of income with only salary covered to get the price down, at least everyone has some disability. I have had the experience of trying to do a "the employer will pay 50% of the cost if the employee takes the coverage" and had the plan fail due to lack of participation. The insurance companies have a minimum number of participants requirement, usually 75% of all employees. That is a difficult amount to achieve. If you want to offer disability, offer a base amount and allow buy up for those employees that are concerned. Everyone should be concerned but it is an education process on the need and reasons to have it.

Q: Who is the best company to buy non-medical insurance from?

A: I use ONLY top rated companies that specialize in disability income products. Price is a factor but the few companies left offering products are price competively. Remember disability is a contractual promise to pay. At the time of claim is NOT the time to find out cheap was not better. Do not strip the product of options. It is better to offer a product with all the desirable options than one gutted out for price. Your employees are depending on you to select the right and proper coverage for them. Be an informed consumer, it would not be good to have to explain in court you elected company x because you could save $50 a month when they are not comparable products. Cut the monthly benefit not the internal definitions. The top disability companies also do a much better job of managing disability claims because that is what they do best. I use companies like UNUM-Provident, now the largest disability income carrier in the world, or Fortis, to name my primary carriers.