group short and long term disability insurance. course objectives to provide an understanding of...
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Group Short and Long Term Disability
Insurance
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Course Objectives
• To provide an understanding of group disability insurance and the disability market with particular emphasis on . . .– Sick-Leave– Short-Term Disability Plans – Long-Term Disability Plans– Voluntary/Worksite Plan
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24%
12%
8%
7%
6%
5%
5%
4%
3%
26%
0% 5% 10% 15% 20% 25%
Mental Illness
Alcohol/Drug
Alzheimer's
Muscuoskeletal
Respiratory
Cardiovascular
Sense Organ
Injuries
Disgestive
All other
Top seven chronic conditions causing work limitations
Society of HR Mgt, WorkplaceVisions; World Jea;tj Prgamozatopm 2001Society of HR Mgt, WorkplaceVisions; World Jea;tj Prgamozatopm 2001
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Distribution of Coverage
JHA Disability Fact Book 2003/2004 Edition
STD LTD
63.7% 64%
15%
21.3%
16.4%
19.5%
Employer pays allEmployer pays all
ER and EEER and EE
Employee pays allEmployee pays all
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The Current Market Position
• In a survey of business with 1-99 employees, 52% of the firms offered LTD and 48% offered STD
• Larger groups (500+) are more likely to offer disability benefits vs smaller employers (<100 ees)– LTD: 90% vs 77%– STD: 84% vs 62%
• Manufacturing firms are more likely to offer STD (70% vs 55%) then LTD (61% vs 71%) then non-manufacturing firms
JHA Disability Fact Book, 2003/2004 EditionJHA Disability Fact Book, 2003/2004 Edition
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Self-Funded or Sick-Pay Plans
• Typically self-funded by the employer
• Often tied to tenure
• Usually capped at a certain number of work-days, ie., 10 days
• Almost always ‘total only’
• Needs to meet employers needs and coordinate with other plans
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Common Plan Design Parameters
• Benefit: 60% or 662/3 % to $500
• 0/7/13 or 0/7/26
• Non-occupation
• Family integration
Short-Term Disability (STD) Plans
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Common Plan Design Parameters
• Benefit: 60% to $6,000• 90 or 180 day elimination period• 2 year own occupation• Zero day residual with partial• Family integration• 2 year mental and nervous
Long-Term Disability (LTD) Plans
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• Own occupation typically 2,3,5 years or own occ to age 65– Unable to perform all the material duties of own
occupation on a full-time basis for selected # of years
• Any occupation begins after own occupation period ends– Unable to perform the duties of own or any other
occupation for which person is fitted by training, education, experience, age and physical and mental capacity
Own/Any Occupation
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• Basic Monthly Earnings– With or without commissions and/or bonuses– 12 or 24 month average
• W-2 Earnings
• S-Corporation Earnings
• Partnership Earnings
• Teacher’s Earnings
Insurable Income Options
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• Workers’ Compensation
• Social Security
• Other Compulsory Group Disability
• Government Retirement Disability
• Employer’s Retirement Disability
• Unemployment
Other Income Benefits
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Social Security
• Primary only
• Primary and family
Common Income Offsets
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Primary Only
LTD Benefit $4,600
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Primary and Family
LTD Benefit $4,250
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• 401k plans and 403B plans• VA benefits• Profit sharing not funded by employer• Thrift plans• IRAs• Tax sheltered annuities• SOPs – stock ownership plans• Retirement benefits• No-fault auto insurance
Income Not Typically Offset
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Worksite
• Payroll – Simplified Issue– Individual– Optional Riders
• Group– Guarantee Issue– Participation requirements
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Payroll
• Typically include individual, payroll deducted products
• Usually ‘simplified’ issue with limited medical underwriting
• Portable• Often with limited plan design, ie., benefit
duration• Often sold on an ‘indemnity basis’ versus as a
percentage of one’s income ($500 per month)
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Group Voluntary
• Typically a group chassis, with age-brackets• Premium is calculated by taking the rate (either
age-bracket or composite) times the employee’s covered monthly income
• 60 % of covered earnings• Typically Guarantee Issue during the ‘open
enrollment’ and requiring Evidence if a late enrollee
• Usually require some minimum participation level• Limited portability
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Core-Buy Up
• Increasingly popular option• Employer purchases a base plan and allows the
employee to ‘buy-up’ on a voluntary, payroll deduction mode
• ‘Buy-ups’ can include benefit duration, benefit amount, elimination period
• Can help stabilize the employees cost and allows the employee to purchase on a group basis with price breaks and guarantee issue
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Core-Buy Up Sales Example
Benefit Plan Design Core Plan CorePLUSMonthly Earnings $5,000 $5,000After-tax income $3,500 $3,500Benefit Plan 50% to $5k 60% to $6kGross benefit $2,500 $3,000Taxable benefit $2,500 $1,500 ($3kx.65)Benefit not taxed $0 $1,050Taxes (fed+state) 30% 30%Total Tax $720(2,500 x .30) $585(1,950 x .30)
Net (after-tax) benefit $1,750(2,500-750) $2,415(3,000-585)
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Core-Buy Up Options
Benefit Duration – The employer purchases a plan with benefits payable for 2 years or 5 years and the employee purchases protection to age 65Benefit Amount – The employer provides a limited benefit amount, ie., $1500/month and the employee purchases a higher maximum, ie., $5000/month using after-tax dollars thus creating a federal income-tax free benefit for the higher amountElimination Period – Purchasing a lesser elimination period versus the employer provided plan, ie, buy down the e.p. from 180 days to 90 days
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• Group disability insurance is more necessary now then ever
• Most employees are living close to financial hardship and do not have the personal savings to withstand a work absence
• More options for providing disability plans to your employers and their employees exist then just a few years ago
• Your employer groups are looking for advice and counsel on plan design
Final Thoughts
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Questions?