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Disability Insurance

Disability Insurance

What are the chances you’ll need short-term disability insurance or long-term disability insurance coverage:

  • In the last 10 minutes, 490 Americans became disabled.
    – National Safety Council®, Injury Facts® 2010 Ed.
  • In 2008, there were 2.1 million disabling injuries caused by a motor vehicle accident; compare this to 39,000 fatal motor vehicle accidents.
    – National Safety Council®, Injury Facts® 2010 Ed.
  • In the US, a disabling injury occurs every second, while a fatal injury occurs every 4 minutes.
    – National Safety Council®, Injury Facts® 2010 Ed.

There are two types of disability insurance available: short-term and long-term.

Short-Term Disability

A short-term disability is usually defined as an employee’s inability to perform the duties of the employee’s current position. Paid sick leave and short-term disability plans protect employees against loss of income during temporary absences from work due to illness or accident. Sick leave is provided to most full-time employees, and sickness and accident insurance to a significant but smaller number of full-time employees. Some employees have both sick leave and short-term disability plans, with the two benefits coordinated. The duration of short-term disability benefits typically ranges from 13 to 52 weeks, although most employees are covered for up to 26 weeks. Short-term disability plans usually specify when successive periods of disability are considered to be separate disabilities and when they are considered to be a continuous disability.

Often, paid sick leave is available to the employee without any waiting period, and it may be used during the interim before sickness and accident insurance payments begin. Under most sickness and accident insurance plans, the disability must exist for at least one week before an employee becomes eligible for benefits. This waiting period is intended to control plan costs and simplify plan administration.

Sick leave usually provides 100 percent of an employee’s normal earnings, and the plan frequently specifies a maximum number of covered days each year that are permitted for paid sick leave (for example 13 days). Since 2011, the state of Connecticut requires paid sick leave to accrue at one hour per 40 hours worked, if an employer employs more than 49 people in Connecticut. Effective July 1, 2015 the state of California requires certain employers with at least one employee to provide paid sick leave. Additionally, effective July 1, 2015, the state of Massachusetts requires up to 40 hours of paid sick leave per individual annually if there are more than 10 employees. Other plans provide sick leave benefits (for example 30 days) per illness instead of per year. When used in conjunction with sick leave plans, sickness and accident plans provide benefits after sick leave benefits are exhausted.

The level of sickness and accident benefits for short-term disability may be expressed as a dollar amount or as a percentage of employee earnings. The level and duration of benefits may increase with service. Generally, benefits replace between one-half and two-thirds of a person’s predisability gross weekly income. It is often thought that a higher replacement rate would create a disincentive for employees to return to work.

Employers generally pay for short-term disability plans. These plans may be financed under the following:

  • A group insurance contract with a private insurance carrier.
  • An employer self-insurance arrangement.
  • An employer-established employee benefit trust fund.
  • General corporate assets (such as for a sick leave plan).

Long-Term Disability

In most long-term plans, disability for the first two years is defined somewhat differently from disability under short-term plans (for example, an employee’s inability to perform the duties of the employee’s occupation vs. the duties of the current position). If the disability continues for more than two years, the definition of disability usually changes to the inability to perform any occupation that the person is reasonably suited to do by training, education, and experience.

Private sources of long-term disability benefits include the following:

  • Disability provisions under long-term disability plans.
  • Group life insurance.
  • Employment-based pension plans.
  • Other insurance arrangements (such as individual insurance protection).

Like short-term benefits, long-term disability benefits are integrated with benefits from other sources to produce reasonable replacement rates and to control costs.

Long-term benefits generally begin after short-term disability benefits (such as sick leave, and illness or accident insurance) expire. Most plans provide benefits for the length of a disability up to a specified age (for example age 65, when Social Security and employment-based retirement benefits usually begin).

Typically, long-term disability plans pay benefits amounting to approximately 60 percent of a person’s predisability monthly pay. However, some plans provide as much as 70 percent of predisability pay. Additionally, some plans contain a provision stating that private-sector long-term disability benefits plus Social Security disability benefits cannot exceed a stated amount (for example 75 percent of predisability salary). Most plans set a limit on monthly payments. The cost of long-term disability benefits may be financed by the following:

  • Employer contributions.
  • Employee contributions.
  • Employer/employee cost sharing.

Similar to short-term disability plans, long-term plans usually specify when successive periods of disability are considered to be separate disabilities and when they are considered to be a continuous disability. In addition, some long-term plans provide for continued payment of at least some disability benefits when long-term disabled persons engage in rehabilitative employment.

The disability insurance plans offered by Healthcare Consultants include “employer-choice” or “employee-choice” options, which include but are not limited to: elimination periods, benefit duration, and benefits as a percentage of salary.

Healthcare Consultants can assist in setting up disability insurance as part of an overall benefits program for your business. For more information, please call us at 713-626-2838 or complete our Contact Form.

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