Elements

• Long Term

By its name alone, coverage will last over a long period of time. This is not to cover that brief illness, but rather some major personal health catastrophe that keeps the worker off the job for an extended period of time
• Short Term

Coverage for short periods usually after 7 days of illness or first day after an accident. It should run until the Long Term element takes over.
• Group Life

Good plans usually include a Group Life benefit, usually at some multiple of annual income, and at very favorable rates.
• AD&D

Accidental Death & Dismemberment pays double indemnity at death, and scheduled amounts of loss of eyes or limbs.
• Carve Outs

The ability to provide coverage to just the key or top echelon executives
• Elimination Period

The period of time between start of work absence and when the insurance kicks in.
• Benefit Period

The length that benefits will be paid. Options usually range from defined periods of say 2 or 5 years, up to age 65.
• S.S. Rider

Where the plan pays the Social Security benefit until SS kicks in, or continues to pay it if SS denies the claim, which is common. (40%)
• Non-Can

The policy cannot be canceled after a claim.
• Own-Occ

Benefits are paid until the insured can return to their regular job.
• Partial

A prorated benefit if the employee can initially only work part time.
• Portability

Some plans are actually "owned" by the employees and they can take the coverage with them if they leave.
• Review Rider

Most common with individual plans where periodically, the insured has the option to increase coverage as income grows.

Disability insurance covers work absence from more than 7 days due to illness, Zero days for accident, to as long as to age 65. A recovery from a heart attack could easily keep a person out of work for four or more months. In the hierarchy of employee benefits, Disability protection ranks at least second and yet it is the most commonly omitted benefit offered.

Cost
Many companies do not offer disability coverage because they assume it is prohibitively expensive. In fact, it may
be the best value benefit. The most common response we get to an initial Disability quote is "Is that all?" It is worth looking at.

Owners and Principals
Many company owners have completely overlooked themselves as they are most often excluded from WC. What happens to the business if a key person is out on disability? Is sales/service revenue impacted? Can the owner still draw a paycheck? How will they meet household expenses, let alone keep the business a-float?

LTD vs Workers Comp
Workers Compensation does carry a disability benefit, BUT that only applies to on-the-job accidents. The risk of experiencing at least one disability prior to age 65 is 80%! Furthermore, the fall back argument that Social Security will cover long term disability ignores four crucial factors:

Social Security Benefits:
1. SS Rejects more than 40% of all disability claims!
2. SS takes more than a year before being awarded!
3. SS benefits just don't meet normal living expenses!
4. SS doesn't cover partial disability.

Ratings:
Factors related to calculating Disability premiums include:

o Occupation
o Age
o Salary
o Waiting Periods (called Elimination Periods)
o Benefit period (usually 2 or 5 years or to age 65)
o Special riders

Group Disability plans may average high vs low risk occupations. Some plans even rate on the majority occupation class giving a huge break to higher risk functions. Group premiums are far less expensive than individual premiums. Combining a Short Term Plan to cover a longer elimination period for the Long Term Plan often means a better benefit for the employee and a lower net cost to the employer.

Benefit Amount:
The income replacement benefit is normally calculated at an amount between 60% to 70% of income. That is because disability benefits are non-taxable and therefore are calculated to approximate the insured's net pay, not gross pay.

Bundling Coverage
A group Disability plan often includes four kinds of protection. Obviously, income replacement for long periods of absence is number one. Second is a short term plan replacing income while the employee is meeting the LTD Elimination Period. The third type is life insurance which is usually figured at some multiple of annual income, and usually without any medical exams. Last is Accidental Death & dismemberment and is included only because as a bundled product, the premium is very inexpensive.

Individual LTD is rated as group plans are. However, the fact that there is just a single person can have a large impact on rates. For example, a package for three employees could be close to the same premium as one person acting alone.

Individual plans normally are sold as just Long Term without the other coverages. Set the elimination period as long as you can to reduce premiums.

Full health underwriting will be required.

A person who owns their own Disability plan and is later employed by a company offering benefits, may collect on both. The opposite is NOT true. A person with existing coverage cannot then buy a personal plan. (An exception to this would be Employee Optional plans discussed in detail in the Group Benefits section of this web site.)