Transcript Presentation: Group Short and Long Term Disability Insurance

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 . . .
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Sick-Leave
Short-Term Disability Plans
Long-Term Disability Plans
Voluntary/Worksite Plan
Top seven chronic conditions
causing work limitations
All other
26%
Disgestive
3%
Injuries
4%
Sense Organ
5%
Cardiovascular
5%
Respiratory
6%
Muscuoskeletal
7%
Alzheimer's
8%
Alcohol/Drug
12%
Mental Illness
24%
0%
5%
10%
15%
20%
Society of HR Mgt, WorkplaceVisions; World Jea;tj Prgamozatopm 2001
25%
Distribution of Coverage
Employer pays all
63.7%
15%
21.3%
ER and EE
Employee pays all
STD
JHA Disability Fact Book 2003/2004 Edition
64%
16.4%
19.5%
LTD
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
• 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
Common Plan Design Parameters
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Benefit: 60% or 662/3 % to $500
0/7/13 or 0/7/26
Non-occupation
Family integration
Long-Term Disability (LTD)
Plans
Common Plan Design Parameters
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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 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
• Basic Monthly Earnings
– With or without commissions and/or bonuses
– 12 or 24 month average
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W-2 Earnings
S-Corporation Earnings
Partnership Earnings
Teacher’s Earnings
Other Income Benefits
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Workers’ Compensation
Social Security
Other Compulsory Group Disability
Government Retirement Disability
Employer’s Retirement Disability
Unemployment
Common Income Offsets
Social Security
• Primary only
• Primary and family
Primary Only
LTD Benefit $4,600
Primary and Family
LTD Benefit $4,250
Income Not Typically Offset
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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
Worksite
• Payroll
– Simplified Issue
– Individual
– Optional Riders
• Group
– Guarantee Issue
– Participation requirements
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 one’s income ($500 per month)
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
• 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
Benefit Plan Design
Monthly Earnings
After-tax income
Benefit Plan
Gross benefit
Taxable benefit
Benefit not taxed
Taxes (fed+state)
Total Tax
Core Plan
$5,000
$3,500
50% to $5k
$2,500
$2,500
$0
30%
$720(2,500 x .30)
CorePLUS
$5,000
$3,500
60% to $6k
$3,000
$1,500 ($3kx.65)
$1,050
30%
$585(1,950 x .30)
Net (after-tax) benefit
$1,750(2,500-750)
$2,415(3,000-585)
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
• 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
Questions?