Disability insurance has become an increasingly valuable part of a comprehensive employee benefits package. Not only does disability insurance fill the gaps in financial protection offered by other programs like Social Security, it is also a highly sought-after component of a competitive benefits package for employers who need to attract and retain talented employees. And while employees appreciate the peace of mind they receive as their income replacement benefits are being paid, employers can use the resources offered by insurers to manage time and productivity losses and find the most effective ways to return employees to work.
Employer-sponsored disability insurance
Employer-sponsored disability insurance coverage is an important benefit for every employee. For most workers, the ability to earn a living is their most significant financial asset, and a lengthy period of disability can be devastating. Employers can help protect against that risk by providing group disability income insurance — a group insurance product that provides income replacement benefits to an employee should he or she become sick or injured and unable to work.
Disability insurance protects workers and their families against financial catastrophe by helping them meet daily expenses—bills, mortgages, and other expenses—and maintain their standard of living. Disability insurance replaces a percentage of pre-disability income if an employee is unable to work due to illness or injury for a specified period of time. Employers may offer short-term disability coverage, long-term disability coverage, or integrate both short and long-term disability coverage.
Short-term disability coverage
Short-term disability (STD) coverage provides disabled employees with a specified percentage of pre-disability income—typically 60%—once their sick leave has been exhausted. The duration of STD coverage varies, but is typically not more than six months.
Conditions that may trigger payment of STD benefits include pregnancies, strains, sprains, and minor surgeries. These conditions typically resolve quickly and employees usually are able to return to work before the benefits are exhausted.
Long-term disability coverage
Long-term disability (LTD) insurance provides income to workers whose earnings are interrupted by lengthy periods of disability. Long-term disability benefits usually begin when sick leave and short-term disability benefits are exhausted, and typically replace about 60% of pay. LTD benefits can continue for anywhere from five years to the remainder of an individual’s life. LTD is generally considered protection from the effects of a catastrophic illness or injury, but claims are often a result of common ongoing medical conditions that worsen over time (e.g., heart disease, hypertension, and diabetes).
I already provide workers’ compensation coverage. Doesn’t it help?
Not if the employee became ill or was injured in a non-work setting. Workers’ compensation is state-mandated insurance that covers both lost income and medical expenses for work-related illnesses or injuries. Workers’ compensation cannot help for injuries or illnesses that occur outside of work. This is where STD and LTD provide protection.
Why provide disability insurance?
Disability insurance is both an employee benefit and a health and productivity tool. The rehabilitation and management tools available from most insurers can yield significant savings to employers. While helping your employees avoid financial disaster, disability insurance also helps you mitigate the indirect costs of disabilities, such as finding replacement workers and the costs incurred by time and productivity losses. These problems are amplified for small businesses where the absence of just one key employee can have a lasting impact on productivity and can even impact the continuation of day-to-day operations.
Want to keep reading?
At Raffa Financial, we provide long-lasting benefits strategies to take care of your business and your employees. Located in Rockville, Maryland, we identify and manage complex employee benefits challenges for businesses all over the greater Maryland, Virginia and Washington, DC area.
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