Three in 10 Americans entering the work force today will become disabled before they retire. And 43 percent of those ages 40 and older in the work force will have a disability event prior to age 65.
Employers should be asking themselves if they are doing enough to protect their employees if they become disabled.
“Disability insurance can help keep your employees part of your active work force,” says JP Pressley, vice president at USI. “Employees who have a disability plan are four times more likely to return to work following a disability than are employees without insurance. The cost of recruiting, training and getting a new employee up to speed is significant. Just being a good corporate citizen is one thing, but when you see the value of how it impacts the bottom line, that’s when employers really start putting a value on the benefits of disability insurance.”
Smart Business spoke with Pressley about how short-term and long-term disability insurance can financially protect employees and how it can directly impact a company’s bottom line.
Why are so many employers unaware of the need for disability insurance?
When companies are buying employee benefits, their primary concern is to get medical costs under control. When it comes to discussing disability, there is little to no time left at the end of the conversation to discuss this extremely valuable benefit.
That conversation needs to be moved to the forefront, because the dollar value of this benefit is 10 times the dollar value of medical benefits.
How does disability insurance work?
With short-term disability, the disabled employee is paid weekly between 40 and 70 percent of pre-disability earnings. Depending on coverage, that lasts 11 to 52 weeks. After that, the employee transitions into a long-term disability program, in which payments are made monthly.
Those payments can continue until employees reach age 65, if they are no longer unable to perform the material duties of their occupation, or if they are unable to return to work making more than 80 percent of pre-disability income.
If someone becomes disabled at age 35, gets a disability payment of $7,000 a month and remains disabled until age 65, that person will receive well in excess of $2.5 million of benefits. There’s a real financial incentive to have this coverage.
Where should an employer start?
The key is to design a plan that allows all employees, regardless of your budget, to participate in a plan that gives them access to this insurance, either through a plan subsidized by the employer or by buying the entire package themselves.
Work with a financial professional to help you understand this insurance so that you can easily communicate it to your work force. Once you start having those conversations, it’s eye-opening to both the employee group and the employer that there’s a liability they are facing without the safety net of both short-term and long-term disability insurance.
What would you say to business leaders who say they cannot afford to offer this benefit?
We are seeing more employers go to full voluntary programs, in which employees pay their full premium. However, if an employer pays even a small amount, say 10 percent of premium, employees see more value in it because they see that the employer has made a financial commitment to it. Typically, your insurance broker can find other areas in the company’s overall benefits spending to offset the minor cost for a percentage of disability insurance, so there’s no net increase in benefits cost to the employer. And if you can’t afford to cover all your employees’ wages, you can still set up a plan that allows them to participate in bridging the gap between your financial ability and their financial needs.
Won’t the government take care of employees who become disabled?
The perception is that the government will take care of you. In California, and in four other states, there is state disability insurance, and some employers don’t purchase disability as an employee benefit because they think state-mandated benefits will cover their employees’ needs. But those benefits don’t provide full coverage for all of your employees, and they are significantly underinsuring your most highly compensated employees.
Many also believe that Social Security will take care of employees who become disabled. However, Social Security benefits for the long-term disability are really difficult to qualify for, and it is estimated that less than 13 percent of the work force that is currently disabled is receiving benefits from Social Security.
With disability insurance, employers have a really big opportunity to provide a low-cost, well-received benefit that employees appreciate because their employers are looking after their financial well being.
How can having disability insurance get employees back on the job more quickly?
There are a huge number of local resources that insurance companies have access to, and they have a financial interest in getting employees back to work.
Most insurance companies, during the first 24 months of a disability, will assign an outreach counselor to work with the disabled individual to access physical and vocational training. And they will work with the employer to set up a part-time disability program in which the disabled employee can at least get back to work on a part-time basis. Because once they’re back part time, that really paves the road for them to return on a full-time basis, saving the employer the time and expense of hiring and training someone new.
JP Pressley is vice president at USI in Walnut Creek. Reach him at (925) 472-6770 or firstname.lastname@example.org.