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Why Everyone Needs Long-Term Disability Insurance

What would your employees do if they became injured or ill and couldn’t work for an extended period of time?  

By the time people reach age 35, they have a one in three chance of being disabled for more than 90 days during the rest of their working life, according to the Health Insurance Association of America. A recent MetLife survey indicated that an increasing number of employees are more concerned with having financial security in the event of a disability than they are with premature death. 

Group long-term disability income (LTD) insurance provides your employees funds to help them meet daily expenses when they cannot work. This security can enhance recruiting, retention and productivity. 

Employers can cover the entire cost of LTD, cost-share with the employee or offer coverage as an employee-paid, voluntary benefit. You can also offer group or individual coverage. 

Studies show that almost half of mid-size to large employers provide coverage that pays benefits for at least five years. Typical group policies replace 50 to 60 percent of income, which balances disabled employees’ need to meet expenses with the employer’s need to provide incentives to return to the job.  

Tax Issues 

If the employer pays premiums and does not include those amounts in gross income, employees do not have to pay income taxes on them. However, any benefits they receive from the policy count as taxable income. If the employee pays all or part of premiums, these amounts come from after-tax dollars. But benefits received in this case are tax-free. 

Most disability policies are non-cancelable, so the insurance company cannot cancel the policy (except for nonpayment of premiums, of course). This gives employees the right to renew the policy every year without an increase in premium or a reduction in benefits, regardless of their health. However, the insurer has the right to increase premiums as long as it does so for all other policyholders in the same rating class. 

What to look for 

As with all benefit programs, employers have many options when selecting a group LTD plan: 

  • Ease of use. Employees and employers should have easy, timely access to information. Many employers like having online access to plan information and usage data, including the number of people on leave, average length of leave, and at which locations. For employees, plans often work best when they offer multiple ways to get information, whether mail, phone or online.
  • Rehabilitation. Evaluate the insurer’s capabilities in rehabilitation and case management. How successful has the carrier been in helping employees return to productive work? 

Group long-term disability coverage provides a valuable addition to the well-rounded benefits program. If you’d like to learn more, please contact us and we’ll help find a plan that’s right for you.