Disability Benefits: What You Need to Know

Over the last few years, employers have recognized the value of expanding voluntary benefits. They can customize these offerings to employees’ needs and improve overall attraction and retention efforts. When we sat down and benchmarked local and national employer data, the lack of one voluntary benefit stood out — disability benefits.

Just around half of employers across the nation offer short term disability (STD) benefits. Long term disability (LTD) benefits are slightly more common – 55% of employers across the country offer LTD.

Are disability benefits a luxury? Or is it an opportunity to provide employees with financial security and build a benefits package that sets you apart from your competition? Time to find out.

What Are Disability Benefits?

Disability benefits provide guaranteed income or job protection to employees who are unable to work due to serious illness or injury. The illness or injury can be either temporary or permanent, and it does not need to be work-related to qualify for disability benefits. Chronic illness, pregnancy, anxiety and depression are the most common causes of disability for U.S. workers.

Disability benefits can be vital to employees experiencing a qualifying disability and often offer a much-needed safety net, allowing employees to pay bills and provide for their families when they are unable to work.

While STD and LTD benefits are the most comment forms of disability insurance, workers’ compensation insurance, paid leave programs and long-term care insurance are also forms of disability benefits.

Disability benefits are often voluntary, but there are exceptions. Federal and state mandated disability programs may require employers to participate.

Why Offer Disability Benefits?

Financial stability

One in four working adults will become disabled before reaching retirement age, according to the Social Security Administration. Unfortunately, many workers are unprepared to lose their income or unable to afford unexpected medical expenses. Income or job loss due to an illness or injury can be devastating for employees and their families. These benefit offerings can be critical to protecting an employee’s future earnings as well as peace of mind.

A competitive advantage

These benefits can also serve as a vital component of your overall benefits strategy. It provides an avenue for employers to demonstrate their commitment to their workers’ well-being. As you develop a benefits package that will be an asset in your talent strategy, disability benefits could set your organization apart and help attract and retain quality talent.

Imagine someone looking for a job in a manufacturing environment — one potential employer offers disability benefits, and the other does not. What message does that send? Build a benefits package that meets talent where they are and gives you a competitive edge in the battle for talent.

They are cost effective

Rising medical costs related to treating chronic conditions, disabilities and serious injuries make disability insurance more critical than ever. Additionally, they are inexpensive for employers. The costs for STD and LTD insurance are approximately 1% of an organization’s total compensation costs based on sampled data from 7,400 private industry employers, according to the U.S. Bureau of Labor Statistics (BLS).

Employers who integrate their health and disability benefits can improve their workforce’s overall health by coordinating employees’ care, allowing earlier interventions and decreasing workplace absenteeism.

Types of Disability Benefits

Short-term Disability Insurance

STD insurance provides a vital bridge of financial stability for employees with temporary health conditions that keep them from working. This benefit replaces all or a portion of an employee’s income, but employers can allow employees to supplement their STD benefits with paid sick leave or other benefits. Here is a quick breakdown of local and national STD benchmarks.

Long-term Disability Insurance

LTD insurance provides employees with income for long-term illnesses and injuries. Like STD, employees receive income benefits until they can return to work or have exhausted policy limits. LTD benefits requirements tend to be more rigorous than STD because workers need to demonstrate they are unable to perform any job, not just the job they were working prior to the illness or injury.

These plans often work together with STD, so when an employee exhausts their STD benefits, LTD benefits continue to provide the employee with income. As with STD benefits, LTD does not provide workers with job protection. Employees who become permanently disabled may continue to receive LTD benefits through their retirement date or until they are eligible for Social Security disability benefits.

Long-term Care Insurance

Long-term care insurance provides employees with coverage to treat chronic illnesses and disabilities outside of a hospital when individuals can no longer care for themselves. These policies cover services such as home health care, nursing home care, hospice care, assisted living facilities care and respite care. Long-term care insurance can help employees safeguard their financial futures. Employers tend to offer this benefit to help their aging workforce.

Critical Illness Insurance

Critical illness insurance gives employees a fixed lump-sum payment after a diagnosis covered by the policy. These policies may cover conditions such as kidney disease, stroke, heart attack and cancer. Employees typically pay critical illness insurance premiums.

State and Federal Disability Benefits

Employees may be entitled to disability benefits under state or federal law. For example, the FMLA provides eligible employees of covered employers with up to 12 weeks of unpaid, job-protected leave for certain family and medical reasons. Under the Americans with Disabilities Act, employers must consider providing disabled employees with reasonable accommodations. Leave from work may be accommodation if it is reasonable and does not create undue hardship for the employer. Employees who experience work-related injuries and illnesses resulting in a disability may be entitled to workers’ compensation benefits.

Most states mandate these benefits and provide employees with wage replacement and medical benefits. Additionally, the SSA provides disability benefits to workers if their disability lasts for at least 12 months. Several states have enacted their own leave-related laws, which provide injured or disabled workers with job-protected leave. Employers should consult with their benefits advisor or legal counsel to discuss any state-specific disability or leave requirements.

Safeguards for Your Leaders: Executive Disability Insurance

Executive Disability Income Insurance is a critical financial safety net for business owners, executives and high-income professionals like doctors. An illness or injury that prevents these executives from working could cause them to lose a sizable portion of their income.

Standard employer-sponsored long-term disability (LTD) policies, that most often pay about 60% of salary, are not likely to cover executive bonuses or incentive compensation. The maximum limit on these policies also means executives may not receive even 60% of their salary. This can create significant earning gaps for executives.

Executive Disability Income Insurance can supplement LTD benefits. Not only does it provide a higher percentage of salary than standard policies, but it also allows employers to create a customized benefits package that protects top performing executives.

Peace of Mind

Disability benefits can provide sick and injured workers with financial stability and peace of mind when they are unable to work. Understanding the distinct types of disability benefits—and their value—can help employers decide which benefits their employees need and desire. Offering these benefits can be a powerful tool to improve an organization’s attraction and retention efforts.

If you are looking for more insight into how your benefits package stacks up against the competition, we would love to help. Just click below to get in touch.