01 Jun Fringe Benefits: Do Not Overlook Disability Coverage
In many ways, the days of employers offering only ‘traditional’ employee benefits are history. Now, novel perks such as on-site gyms, free snacks, and pet insurance are commonplace. However, it is often the more traditional benefits that provide the most value to employees in the long run. Case in point: disability coverage.
A common worry
Disability insurance is neither sexy nor widely offered. Yet the 2016 Insurance Barometer Study by LIMRA, an association of financial services firms and insurers, found that 56 percent of American workers worry about supporting themselves if disabled and unable to work, and the percentages are higher among younger workers, hitting 70 percent for Millennials and 68 percent for Gen Xers.
These fears are not misplaced. The Council for Disability Awareness reports that more than 25 percent of today’s 20-year-olds can expect to miss work for at least a year because of a disability before they reach full retirement age for Social Security purposes, and the average duration of a disability claim is almost three years.
Costs & taxes
Short-term disability insurance typically covers three to six months of pay, with long-term generally covering the remaining length of the disability or until retirement. According to the Bureau of Labor Statistics (BLS), the median salary replacement rate for both short and long-term policies is 60 percent. Most long-term plans come with a maximum amount payable.
You can help employees protect against disability losses for a relatively low cost, especially compared to the expense of health insurance. The BLS estimates the cost of providing short and long-term disability insurance to be about one percent of total compensation, or $624 per year for a full-time, private-sector worker.
The BLS says that most workers do not make contributions to their short or long-term disability insurance plans. Those employees who do and use after-tax dollars to pay for the coverage will see an upside if they ever need to tap the benefits: They generally will not be taxed on the payouts, which essentially amounts to higher benefits.
To help your employees get the most out of disability insurance, you will need to educate them. In a 2017 survey, LIMRA found that fewer than two in three workers understand what disability insurance is, and only 43 percent know that short-term disability insurance is often used to provide paid leave after routine childbirth. You might find it effective to provide examples of various ways employees can benefit from having disability insurance. Interested? We can provide you with further information.