What is group disability insurance?

Group disability insurance provides financial benefits for your employees if they can no longer carry out their duties due to a disability that occurs while the employee is not working. The goal of disability insurance is to ensure that disabled employees can support themselves even if they are no longer able to work.

There are two primary types of group disability insurance: Short-Term Disability Insurance (STD) and Long-Term Disability Insurance (LTD).

• Short-Term Disability Insurance provides benefits for short period of time—generally a few months up to a year—and is meant for employees who undergo a temporary disability. STD is commonly used in cases such as: birth of a child, recovery from surgery, or prolonged sickness. With STD, there is a short elimination period, or the period of time between injury and benefit payment, and benefits are paid out weekly.
• Long-Term Disability Insurance provides benefits over a longer period of time—generally two, five, or ten years, up to the age of 65, or for life—and typically kicks in after STD. LTD is commonly used in cases such as: cancer, mental health conditions, or an accidental injury. With LTD, the elimination period is at least 90 days, and benefits are paid out monthly.

Who needs group disability insurance?

If you employ 10 or more individuals, offering group disability may be a wise addition to your benefits package.  For financial professionals, it may be difficult to imagine why disability insurance is needed. After all, working in an office is not a physically demanding job. However, disabilities can and do occur, regardless of the type of job you hold.

Example: One of your administrative assistants, whose job depends on typing large amounts of data, is involved in a car accident. The accident injures her hands, and she is no longer able to keep up with the demands of her position. Disability insurance can support her even though she cannot work.

While in most states, group disability insurance is not required by law, offering group disability insurance can serve as a much appreciated benefit for employees and help to attract top talent. Offering group disability insurance ensures that your employees have a financial safety net in the case that they are too hurt or sick to work, giving them some peace of mind.

What does group disability insurance cover?

Group disability insurance is dependent on employment status. It is tied to a person’s place of employment. This means that it will no longer provide benefits if they become disabled after they leave their job. Group disability insurance plans are also not reliant on individual health status. Individual plans may disqualify members from coverage if they have certain preexisting conditions. Group plans have no such exclusions.

Group disability insurance plans can vary from state to state or even job to job. Even the definition of disability might change depending on your plan. For the most part, disability is defined as being unable to carry out your job requirements.

Employee disability coverage is tied to their base salary or W2 income. This does not include any salary “extras,” such as retirement funds or yearly bonuses. Some policies pay 100 percent of an employee’s salary, but this is unusual.

Most long-term group plans pay 50 to 60 percent of an employee’s salary. But even this is subject to a monthly limit. Disability insurance is not intended to completely replace a salary. Rather, the goal is to make it possible for a disabled employee to get by when they can no longer work. These group insurance plans may also coordinate their benefits with social security disability insurance. This means that employees may receive less money from their employer-provided plan with social security providing the remainder of the funds.

What doesn’t group disability insurance cover?

A common misconception of disability insurance is that it covers on-the-job injuries. These types of injuries, however, would be covered by workers’ compensation insurance.

How much does group disability insurance cost?

The cost of group disability insurance depends on a number of factors, including the industry your business is in, number of employees, and employee salaries. While the range of pricing can vary widely, most businesses, regardless of size, can expect to pay 0.25% and 0.5% of total compensation for both short and long-term disability coverage.