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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 with particular emphasis on . . . Sick-Leave Short-Term Disability Plans Long-Term Disability Plans Voluntary/Worksite Plan.

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course objectives
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
top seven chronic conditions causing work limitations
Top seven chronic conditions causing work limitations

Society of HR Mgt, WorkplaceVisions; World Jea;tj Prgamozatopm 2001

distribution of coverage
Distribution of Coverage

JHA Disability Fact Book 2003/2004 Edition

Employer pays all



ER and EE



Employee pays all



the current market position
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

self funded or sick pay plans
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
short term disability std plans
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
long term disability ltd plans
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
own any occupation
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
insurable income options
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
  • Teacher’s Earnings
other income benefits
Other Income Benefits
  • Workers’ Compensation
  • Social Security
  • Other Compulsory Group Disability
  • Government Retirement Disability
  • Employer’s Retirement Disability
  • Unemployment
common income offsets
Common Income Offsets

Social Security

  • Primary only
  • Primary and family
primary only
Primary Only

LTD Benefit $4,600

primary and family
Primary and Family

LTD Benefit $4,250

income not typically offset
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
  • Payroll
    • Simplified Issue
    • Individual
    • Optional Riders
  • Group
    • Guarantee Issue
    • Participation requirements
  • 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 one’s income ($500 per month)
group voluntary
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 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
core buy up
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
core buy up sales example
Core-Buy Up Sales Example
  • Benefit Plan DesignCore PlanCorePLUS
  • 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 (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)
core buy up options
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
final thoughts
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