Group Disability Insurance protects your employees from financial risk in the event of an employee disability.
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What Is Group Disability Insurance?
Group Disability Insurance is a form a coverage that protects both your employees’ income and your business’s financial risk in the event of a major illness, accident, or sickness of an employee. Especially for business owners, an employee’s inability to come to work due to a disability could seriously impact your work productivity. Group Disability Insurance would provide income replacement benefits to an employee while they are unable to work, maintaining their standard of living until they can hopefully return to their job.
Group Disability Insurance is crucial for small business owners, especially if you employ only a small number of people. You never know when an employee of yours will be rendered disabled, so it is always a good idea to take preventative measures to ensure you and your business from taking on serious financial loss when a critical employee can’t work, while at the same time providing a layer of financial protection for your employees.
Some examples where Group Disability Insurance could come in handy and minimize the risk of financial loss to your business are:
- An employee is injured unexpectedly and cannot continue his normal working hours.
- One of your employees must go on maternity leave after the birth of her baby. You will have to acquire a temporary employee while she recovers.
- Your employee must go through an emergency surgery during a very busy time for your business. Because of his surgery, you will lose out on business because you have a shortage of staff.
Why do I need Group Disability Insurance?
There are a number of reasons a business owner should seriously consider purchasing Group Disability Insurance. According to the 1985 Commissioner’s Individual Disability Table A, 50 percent of Americans will become disabled for 90 days or more between the ages of 35 and 65. There is a good chance that some of your employees will deal with a temporary or permanent disability during the course of their careers. As a business owner, you need to take preventative measures for when something like this occurs in order to minimize the financial risk to your business and company.
From the perspective of your employees, it is important for you to offer disability insurance to protect them from the risk of losing financial stability in the event of an accident, injury, or illness. Not only does disability insurance protect your employees, it also gives your business the financial and temporal margin you may need in order to react to an employee’s disability. In this way, disability insurance is really a win-win for both the employer and the employees.
In addition to the many benefits Group Disability Insurance can serve your company in the form of minimizing financial risk, offering disability insurance can also be a part of an employee-benefits package to attract great talent. These days, employees are becoming more and more aware of the kinds of benefits that employers are offering. In order to be a competitive player for talent, you should consider offering Group Disability Insurance as a part of your benefits package.
Moreover, non-statutory states require employers to provide temporary disability insurance to their employees. Besides being simply a good financial decision, Group Disability Insurance may very well be a necessity depending on which state you are currently conducting your business in.
What is the difference between Group and Individual Disability Insurance?
Group Disability Insurance is often provided by an employer to their employees. Typically, when an employer purchases Group Disability Insurance, coverage is applicable to all employees, regardless of pre-existing health conditions.
Group Disability Insurance only applies to employees that are employed by the business owner. Therefore, once employees leave your business, they cannot take the coverage with them. Generally, Group Disability Insurance has lower premiums than Individual Disability Insurance and offers less extensive benefits than Individual Disability Insurance.
Individual Disability Insurance is guaranteed by individual and has no ties to the employer. Each applicant is individually underwritten by the insurance company, therefore each plan is catered to the individual. Individual Disability Insurance often has higher premiums, but it also offers more extensive coverage and better benefits. In many cases, employees may opt to purchase an individual disability policy to supplement the more generalized Group Disability Insurance offered by their employer.
What does Group Disability Insurance cover?
Group Disability Insurance provides a percentage of pre-disability income if an employee is unable to work due to illness or injury for a specified period of time. The percentage of income that is covered can range, but typically employers purchase plans that cover 50 to 60 percent of income.
Group Disability Insurance plans also often take into account disability payments or benefits that an employee may receive from other sources, like Social Security Disability Insurance (SSDI) or workers’ compensation. Generally, policies are constructed so that the amount of employee income that is covered is reduced by the amounts payable by other sources, so that the employee doesn’t end up receiving more compensation while disabled than while actively working.
What types of disability insurance are there?
Typically, you will find that there are two types of disability insurance available in the market as an employer. These two forms of disability insurance are based primarily on the projected length of time of the disability, and as such are called Short-Term Disability and Long-Term Disability.
Short-Term Disability Insurance
This type of insurance will cover an employee who suffers an illness or injury that renders him or her disabled and unable to work. Short-Term Disability, or STD as it is commonly referred to, will cover a portion of the employee’s lost wages or income. Typically, this is a fixed percentage of your employee’s income. For example, STD may cover 60% of an employee’s income. STD is used primarily to protect the employee with income protection.
Short-Term Disability usually kicks in shortly after the date of the debilitating injury or illness. STD typically lasts for less than a year. Depending on the disability insurance plan, you may have a waiting period of a few business days before your employees receive their payment.
Some common life events that are typically covered by Short-Term Disability include:
- An unexpected disabling injury
- Pregnancy or birth of a child
- Prolonged sickness
- Post-operative recovery after surgery
Long-Term Disability Insurance
As its name suggests, Long-Term Disability Insurance typically begins once your employee’s STD benefits come to an end. There is usually a wait period before Long-Term Disability comes into its full effect; this time can range between 90 to 180 days. The purpose of Long-Term Disability Insurance is to assist your employee in the event of a longer term disability that directly affects his or her ability to continue working.
Long-Term Disability usually provides coverage until your employee can return to work or is no longer disabled. In some cases, Long-Term Disability may also cover a person until they reach Social Security retirement age.
Some common life events that are covered by Long-Term Disability Insurance may include:
- Chronic illness
- Mental illness or mental disorder
- Degenerative diseases without a cure
- Back pain
- Accidental injuries that have a prolonged effect
- Cardiovascular disease
- Circulatory diseases
- Heart attack
Do I still need disability insurance if I provide workers’ compensation?
Although it is great that you already provide workers’ compensation coverage, as a business owner, you still need to consider disability insurance. The main difference between workers’ compensation and disability insurance is that workers’ compensation primarily covers accidents, injuries, and illnesses that are caused in your workplace.
Workers’ compensation may be required by your state in order to conduct business. In the event one of your employees is injured or becomes ill in your workplace, workers’ compensation covers both lost income and medical expenses for work-related events. However, workers’ compensation will not cover any accident, injury, or illness that occurs outside of the workplace.
As such, it is crucial to still consider both Short-Term and Long-Term Disability Insurance to cover any costs that may occur as a result of non-workplace related accidents, injuries, and illnesses.
As a business owner, there may be many benefits to offering Group Disability Insurance to your employees. Not only will it benefit and protect your employees in the event of a debilitating injury or illness, but it can also give you the margin to react to the absence or loss of a necessary employee. Furthermore, Group Disability Insurance is often viewed as a compelling part of an employee benefits package that will attract top talent in your field. A flourishing business is one that knows how to take care of its employees. Group Disability Insurance can help you create a beneficial security net not only for your employees, but also for the health and livelihood of your business.