Disability Income Insurance Requires Thoughtful Planning
Have you ever asked yourself how your employees would manage if they were to suffer a severe accident or illness that left them unable to work? How would they pay their bills and cover their daily expenses? The likelihood of such an event may be greater than you think. According to the Insurance Information Institute (III, 2002), an employee between the ages of 40 and 65 has a greater chance of missing at least three months of work due to an accident or illness than of suffering an untimely death. To compound the problem, the recovery period may run as high as a lengthy two and a half years.
To be prepared for such a situation, it is important for your employees to plan ahead. A smart approach to help protect your employees is for them to purchase an individual disability income insurance policy. However, there are a few considerations your employees should keep in mind when they are choosing this coverage:
- Definition of Disability. Employees should carefully review their policy's definition of disability. Some policies may provide coverage if an employee is unable to work in the occupation in which he or she was employed or for which he or she was trained. In contrast, other policies may offer coverage only if your employee was unable to work in any occupation.
- Residual Benefits or Partial Disability Coverage. Under certain specified circumstances, if an employee becomes disabled and is only able to earn a portion of his or her previous income, residual benefits or partial disability coverage pays a portion of their benefits.
- Guaranteed Renewable. With this feature, the insurer cannot refuse to renew an employee's policy or change any terms, except for premium cost, as long as premiums are paid on time.
- Guaranteed Insurability. This provision allows employees to increase their monthly benefit, even if they experience health changes that would otherwise prevent them from obtaining additional disability coverage.
- Cost-of-Living Adjustment (COLA). This feature helps protect an employee's benefits against the effects of inflation during a long-term disability.
There are alternatives to having a disability income policy, although they have shortcomings. For instance, employees could self-insure. However, one year of disability could easily eliminate many years of savings for the self-insured. Workers compensation may be an option in some cases; however, it only covers injuries suffered on the job. Eligibility and benefits vary by state.
To qualify for Social Security disability benefits, your employees must be severely disabled and, even then, they will have to wait at least six months for payments to begin. Social Security disability was not intended to be an individual's sole source of disability income, thus benefits are often less than what an employee might need to cover regular living expenses.
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