Disability Insurance for Employers — What Does It Cover?

— Last Updated May 27, 2022

Disability Insurance for Employers — What Does It Cover?

In this article

— Last Updated May 27, 2022

Read Time
7 mins
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Reviewed by
Eric Berkman
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Disability Insurance for Employers — What Does It Cover?

Stephanie Wilson

Director of Operations

Read Time

7 mins
Group-27.png

Reviewed by

Eric Berkman

In this article

The unpredictability of human life is something that many people struggle with daily. Bad things can happen to anyone, seemingly out of nowhere, and derail their entire life and the lives of their family members. Accidents, injuries, sickness, natural disasters — you name it, it can happen.

That’s why we have such a diverse market of insurance options. These days you can insure just about anything, which is good for us as it mitigates (at least partially) the downsides of unforeseen events and ensures that we’re not worrying about something that has not yet happened.

This peace of mind is what we’re buying in most cases, as it makes little sense to worry about something daily and ruin your mood when you can easily avoid the risk with small monthly payments.

We’ve mentioned a few insurance types so far, but today’s main topic is disability insurance for employers. Yes, it’s quite specific, and while the name reveals a bit about what it’s for, we would like to dive a little deeper here.

Let’s see how this type of insurance works and why people get it.

What exactly is disability insurance for employers?

It’s a type of benefit that employers can get for their employees. Think of it as another way to ensure your employees have financial safety in a specific type of situation.

The same way that a 401K retirement plan protects your employees’ finances when they grow older and stop working, so does disability insurance help them remain financially stable if they are unable to work due to a disability.

Disability insurance for employers is an insurance type that business owners can get for their employees. It usually covers the whole company or a specific, high-risk position within a company. Now, employers getting this coverage for their workforce isn’t standard practice.

It’s a specific perk that good companies offer their employees, so if you run into a business that offers this benefit to employees, you might have stumbled upon an employer that values their employees.

Why do companies get disability insurance as an employer?

Not every employer has the same motivation for providing this benefit for their employees. In most cases, workplace hazards motivate employers to get this coverage. As you know, there are specific work environments that are considered to be high-risk, and most potential employees would avoid companies that focus on this kind of work without having disability coverage.

Sometimes, it’s simply a decision that benefits your HR. You get better chances of getting prime talent to your ranks if you offer competitive or above-average benefits and insurance coverage.

That’s often very important for filling specialized positions with a lot of competition. Hence, the potential candidates make the final call depending on the perks and conditions offered by the competing companies. This one is a must if you are in this kind of situation.

There is another reason why this type of coverage is popular with employers. Depending on the size of your company, you can negotiate pretty good group rates. Usually, the bigger the group, the more affordable the coverage gets per person covered. If you’d like to save money on disability coverage, this is the way to go.

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Why do employees prefer working at companies that offer this coverage?

According to the Social Security Administration, one in four people in their 20s working today will experience a 90 day disability period by the time they reach 67 years of age. That’s an astounding statistic that really changes your perspective on things. It’s an across-the-board stat that doesn’t include discrepancies according to a person’s vocation or other parameters.

Interestingly enough, most of us perceive disabilities as a result of an accident — at least, that’s the first thing that comes to mind. Disabilities can also be a result of an illness or disease.

Even though they are not disabling in the exact same manner, they prevent people from working and earning their monthly income. That’s where disability coverage comes in to bridge that financial gap between the recovery period and getting back to work.

It’s especially important for families that rely strictly on one salary for their finances. It is also important for single people who have nobody to rely financially on while they are recovering from a disability.

Last but not least, permanent disabilities are the worst situation to be in, and while not all disability insurance coverage will cover you until retirement, even a short-period coverage can do wonders. It leaves you with financial space to adjust, maybe even get trained to do a different type of work so you can keep earning money.

It’s all about safety and ensuring that your company won’t leave you sinking when things are going bad for you. It’s especially important for high-risk jobs as the risk/reward aspect of doing the job needs to be tilted more towards the latter for the job to be worth it.

What does disability insurance for employers cover?

The term Disability Insurance for Employers is an umbrella term that can include a lot of different disability insurance options. It depends on the insurance company or broker the employer is working with, the type of coverage they offer, what they want to cover for their employees, and how much money the employ would like to spend on offering disability insurance to their employees.

The two most popular policy options are Long Term Disability plans and Short Term Disability plans. Make sure you learn all so you can know the difference between short vs long term disability insurance.

Long-Term Disability Insurance for Employers

Depending on the type of coverage your employer decides to get, long-term disability insurance plans can vary. Typically it covers longer periods from 1 to 10 years of disability work absence, and the company can fully or partially pay for it.

This insurance package can cover accidents, chronic and deadly diseases (cancer, strokes, heart attacks, etc.) which come as a surprise for many as they usually perceive disability as a consequence of an accident.

In most cases, this type of coverage isn’t intended to cover all the money you lose by not being able to work. They usually cover around 60% of your total salary. Depending on the policy you are taking and the insurance company you are going with, it can be more or less, but it typically never covers your full salary.

Keep in mind that if your insurance is covered by pre-tax money, you will end up being taxed on your premium, which can cut them down by a significant amount. There’s also something called the Elimination Period, which can last anywhere between 30 days and 2 years. It’s the amount of time that needs to go by before you start receiving your benefits in the form of money.

Short-Term Disability Insurance for Employers

As the name implies, this is a shorter variant of disability coverage. Usually, it is meant to cover situations where you will be absent from work for three months and up to one year. These payments are typically distributed every week. It has its advantages and you should know short term disability insurance rates.

Of course, like with any other insurance plan, many things can vary, so if you want to know what the one you have covers, you’ll need to inquire with your employer, and typically the HR department.

The advantages of short-term disability insurance become apparent when we take a few statistics into account. One in 18 workers will file a disability claim per annum in the US. As many as 50% of them cannot cover an unexpected expense of $400 without borrowing money or selling something, and 57% of US employees report that they would only have enough money to pay for bills for 6 months or less when losing their salary. So that means, most people would struggle to pay their bills if they didn’t have disability insurance to cover their income loss.

Regardless of if the cause of your inability to work is sickness, injury, or pregnancy, a short-term disability insurance solution like this one can be essential to making the transition and keep your standard of living at the same or nearly the same level.

Additional benefits that can be a part of disability insurance

Let’s talk about some additional benefits which may or may not be a part of your insurance plan. Here is the list of potential benefits:

  • Voluntary rehabilitation
  • Revenue protection & supplemental benefits
  • Extended care
  • Return-to-work incentives
  • Advanced survivor
  • Infectious, contagious, and progressive diseases
  • Accidental death
  • Ongoing employee communication
  • Express claim payment
  • Survivor benefits
  • First-day hospital benefits

Disability insurance coverage can be employer-paid or employee-paid or somewhere in-between with buy-up options where you can choose to upgrade on an employers’ setup that goes for the entire firm. The buy-up difference is usually covered by the employee.

What are the benefits for the company that offers disability insurance to employees?

The first and the most obvious one is that group coverage usually ends up being cheaper for the company than offering individual premiums. Another thing to consider is that if you approach an insurance carrier with a large enough workforce and request insurance for other needs, you can cut the price down even further. There are a lot of benefits of insurance.

Riders are also interesting as they allow you to customize your coverage to a greater degree. It allows you the flexibility to further protect employees that work in positions that have a higher rate of disabilities occurring.

Keep in mind that inflation can cause a change in the value of your disability coverage. You should get informed about what the insurance carrier does to counteract the fluctuations of that value — be they positive or negative.

Some business structures may not benefit the most from getting group insurance. Make sure you consult an insurance advisor to help you understand what kind of setup would be good for you, so you can avoid getting a plan that won’t work for the company or employees.

It is also a contractually binding agreement, and you would do well to check the regular print, the fine print, all of it, before signing anything. You don’t want to be stuck with an insurance contract that is lacking or unsustainable in the long run.

disability insurance

Conclusion

As you can see, disability insurance for employers is a deep and complex issue. It brings many benefits to the table that help both employees and employers be more confident about their operations and protect the workforce.

What you are essentially paying for here is peace of mind that comes with protecting the income of your employees. It can be a priority for those hazardous working jobs, having a big family to support, or being motivated by something else entirely — it’s still a relief that you have it available to employees.

As far as employers go, they get to pay less for covering the whole company than to do so for every individual employee separately. They also get to build up their reputation as employers who care about their workforce. That can lead to the acquisition of better talent and also a more motivated team.

Make sure you get insurance advice from a professional who can help you make a great decision.  We can always help you here at PolicySolver.  Contact us today.

Sources

Social Security. (n.d.). Beneficiaries in Current-Payment Status. Retrieved from SSA.gov website:

https://www.ssa.gov/policy/docs/statcomps/di_asr/2016/sect01.html

Center on Budget and Policy Priorities. (2021). Chart Book: Social Security Disability Insurance. Retrieved from CBPP.org website:

https://www.cbpp.org/research/social-security/social-security-disability-insurance-0

Social Security. (n.d.). Disability Benefits | How You Qualify. Retrieved from SSA.gov website:

https://www.ssa.gov/benefits/disability/qualify.html

Grover, M. (2021). What a $400 Emergency Expense Tells Us About the Economy. Retrieved from Federal Reserve Bank of Minneapolis website:

https://www.minneapolisfed.org/article/2021/what-a-400-dollar-emergency-expense-tells-us-about-the-economy

January 28, 2022

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