Understanding the Benefits of Disability and Life Coverages

Scott DeRoche

The information contained in this article is not intended as legal advice and may no longer be accurate due to changes in the law. Consult NHMA's legal services or your municipal attorney.

Disability and life benefits are extremely low cost, relative to other coverage offerings, but they can have an incredible impact on the lives of employees.  In the event of a disability or tragically, a death, there are likely very few employees whose family have the financial means to survive weeks, months, or years. When surveyed, nearly 9 out of 10 workers say it is important to them to have disability coverage, according to the Consumer Federation of America. These workers recognize that even a relatively short absence from work can be financially devastating without income protection. 

As the cost of health insurance increases nationwide and employers are moving towards higher deductible plans, offering short-term disability, long-term disability and/or life coverage helps keep the employee benefit package robust without a huge cost to the employer. Good short-term disability, long-term disability, and life coverage should each cost only about $200-$500 per employee per year! This is typically a very small percentage of the cost of the overall benefit package offered by employers.

Short-Term Disability

People hear the word “disability” and they think of a catastrophic event such as a serious accident or illness. The truth is that the majority of disabilities are due to more mundane illnesses, not life-changing events. For example, an employee might be out of work due to a broken bone, a bout of pneumonia, or the need for a minor surgery.

These minor disabilities could put them out of work for a time period of several weeks to several months and they may not have enough sick leave to cover the absence. Workers’ compensation will apply only if the injury happened on the job, long-term disability usually won’t kick in until someone has been out for three or six months, and Social Security disability (which is only available for severe conditions which cause at least one year of continuous disability) would be unlikely to cover these illnesses. Many workers don’t have the funds to cover their expenses for several weeks, never mind several months.

Short-term disability (“STD”) can fill in that financial gap until the employee can get back to work. It’s an important step in the continuum of coverage. Short-term disability plans are highly customizable, but will typically pay 60 or 66 2/3rd percent of an employee’s income for up to three to six months, depending on the plan. Coverage can start as early as one day after the disability-causing event, but typically vary depending upon whether the disability was caused by an accident or illness. 

Long-Term Disability

Long-term disability (“LTD”) is often coordinated with the employee’s short-term disability coverage in order to provide seamless coverage when employees are unable to work for an extended period of time. Each LTD plan is different, but most employer plans cover employees for a certain amount of time when they are disabled from their own job (called “Own Occupation”) and will continue to pay after that point if they cannot perform any job for which they would be reasonably qualified (called “Any Occupation”). For example, if a police officer is unable to return to duty due to a knee injury he would be covered for a set period of time. After that point, benefits may cease if he were able to transition to a different job, such as a sedentary office position. If his disability were more severe to the point where he could not reasonably work in any profession for which he was qualified, the benefits would often continue until normal retirement age.

Life Coverage

Out of the three benefits, life coverage is perhaps the most widely offered. Currently, about 72 percent of state and local government employees in New England are offered life insurance coverage by their employers, according to the Bureau of Labor Statistics.  These plans are extremely customizable and vendors are typically able to offer a myriad of different benefit options in order to find one that fits each employer’s unique needs. Even low-cost plans can offer a vital benefit to the family of employees if they were ever to experience a tragedy.  As an example, in some situations a policy of $25,000 can cost as little as $60-$80 per employee per year.  That money can be a big help to a family that experiences a tragic loss. In addition, employers are in a unique position to offer benefits to employees who may have a hard time qualifying for affordable life coverage on the private individual market. With group life plans, there is typically a base amount (“Guaranteed Issue”) that all employees can qualify for, regardless of age or current serious health concerns. Many employer life coverage plans also come with the option for employees to purchase additional levels of coverage, or even coverage for their spouse and dependents, at their own cost.

Keeping Employees Happy

Disability and life coverage can prove to be invaluable benefits for employees during difficult times. Employees recognize this and are increasingly looking for these coverages in their benefit package. As the cost of health insurance increases and coverage trends toward higher deductible plans, offering disability and life coverage is an excellent way to maintain a competitive benefit package and to show your employees that you truly care about their financial well-being.

Scott DeRoche is Assistant Manager, Ancillary Claims and Services at HealthTrust, Inc.  Scott can be reached at 603.230.3386 or by email sderoche@healthtrustnh.org.