Although long term disability (LTD) benefits may lack the appeal of other more often utilized programs in a company’s benefit portfolio, for an employee who becomes disabled due to an accident, injury or illness, it becomes a critical and much appreciated safety net.

Designed to replace lost income when an employee is unable to work for an extended period of time, business owners have a choice to provide coverage to all employees as part of an employer-paid core benefit or make the program optional and employee paid, often as part of the company’s voluntary benefits portfolio.  However, most insurance companies require a minimum level of participation when underwriting an LTD plan, providing an incentive for employers to automatically enroll all employees in the plan and make it a 100% employer paid benefit. 

It should be noted that the upside for employees paying for the program with after-tax dollars or paying through a voluntary program is that if they become disabled and receive benefits, the payments will be tax-free.

LTD plans typically have a waiting period of 90 or 180 days, pay 50-60% of the disabled employee’s monthly income up to a stated maximum length of time, based on a very specific definition of “disability”.  The carrier may or may not include commissions and bonuses in an employee’s income. Of particular importance is the carrier’s definition of disability.  The most liberal definition of the term is “own occupation”, which allows the employee to collect benefits if they are unable to work due to illness or injury, in their current profession.  On the other end of the spectrum is a definition requiring an inability to work in “any occupation”, making it much more difficult for the employee to collect benefits.

The pricing for the benefit program is based on the level of benefits provided, and the demographics of the company’s workforce, among other factors.  Larger companies and those with prior coverage will usually be required to submit past rate history or utilization information. 

For the business owner, it is worth shopping carriers on a regular basis to compare not only pricing but the specific benefits offered by each insurance company, including any exclusions and limitations.  Brokers and benefit consultants typically know the best carriers in each region for various industries and can more effectively shop and compare programs for the business owner or designated benefit manager.

My Benefit Advisor (MBA) guides employers of all sizes through planning, communicating, and managing a successful employee benefits program. We are ready to help you find the solution that fits your needs, from group insurance to individual coverage. For more information about MBA, contact us.

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