Disability Insurance

​Disability Insurance


 ​   According to the Council for Disability Awareness, more than one in four people in their 20s will become disabled before retiring and one in
   eight workers can expect to be disabled for five or more years before retirement. Statistics like this should make short and long-term
   disability insurance a vital piece of an employees overall financial plan. Should you become disabled tomorrow and couldn't work for two or
   three months or even longer, would you have enough savings to cover your living expenses during that time? Most people don't.

​   The biggest asset an employee has is the ability to earn income. Should an illness, accident or injury ever prevent an employee from working
   for a period of time, the financial impact can be devastating for the employee ​and their family.  Short and long-term disability benefits are
   the single best way to safeguard employees so they can withstand the challenging times they're likely to face when they’re unable to
​   work. Short and long-term disability benefit are available both as a contributory benefit and a voluntary benefit. 


Short-Term Disability Insurance


   Short-term disability insurance pays a percentage of your salary if you become temporarily disabled, meaning that you are not able to work
​   for a short period of time due to an illness, accident or injury not to exceed 26 consecutive weeks. Short-term disability insurance pays you
   either a fixed dollar amount or up to 60 percent of your base salary with benefits lasting up to 13 or 26 weeks depending upon your plan
   design. Group short-term disability insurance policies are "guaranteed issue," meaning you do not have to take a medical exam to buy
   coverage.


   According to an examination by disability insurer Unum of 2012 claims made by its customers, the top causes for a short-term
   disability claim are:


  • Normal pregnancy, 19 percent
  • Injuries, 11 percent
  • Complications from pregnancy, 8 percent
  • Digestive disorders, 8 percent
  • Back disorders, 7 percent
  • Cancer, 7 percent


   Short-term disability policies will have a waiting period of between 0 and 14 days. The actual time coverage starts will depend on whether
   you have suffered an illness, accident or injury. If you suffer an accident or injury, your benefits will be paid immediately. If you suffer an
   illness, you will have a waiting period since you will need to show that the illness is serious enough to be disabling.


Long-Term Disability Insurance


   A lot of employees believe their risk of becoming disabled is very small, unless they have a dangerous job or are a daredevil of
   ​sorts. However, according to the Council for Disability Awareness, about one in four of today’s 20-year-olds have a chance of becoming
   disabled sometime before they retire and the average long-term disability absence from work lasts almost 3 years - 34.6 months. That's a
   long time to survive without a steady income.


   Musculoskeletal and connective tissue disorders -- including neck and back pain, joint, muscle and tendon disorders and foot, ankle and
   hand disorders -- were the leading cause of new long-term disability claims in 2013, according to the council’s review of claims data. Cancer
   ranked second among the primary causes.


   A disability can take away your ability to make a living. While some employees may be able to make ends meet by dipping into their savings
   for a few months, few employees are able to stop working ​entirely for a longer period of time. This is where long-term disability insurance
   steps in. Long-term disability insurance provides an employee with income for an extended period ​of time. Once the employee's short-term
   disability benefit expires, long-term disability insurance kicks in immediately and lasts until you either go back to work or for the number of
   years stated in the policy.  The benefit can be up to 66 and 2/3rds of the employees salary; however, 60% is generally the norm. Some
   policies can pay out as long as you are disabled and until you reach the age of 65. 


   Causes of long-term disability claims:


  • Musculoskeletal/connective tissue disorders: 28.6 percent
  • Cancer: 15.1 percent
  • Injuries and poisoning: 10.3 percent
  • Cardiovascular/circulatory: 8.7 percent
  • Mental disorders: 8.3 percent
  • Nervous system-related: 7.7 percent
  • Pregnancy and childbirth complications: 5.9 percent
  • Other: 15.4 percent


Taxation


   For voluntary plans, it's important to understand that employees should pay their premiums with after-tax dollars in order to avoid having
   the benefits taxable. If, however, an employee pays for premiums with pre-tax dollars, the employee will have to pay income taxes on the
   benefits.


   For contributory plans the amount the employer pays towards the premium, whether pre-tax or post-tax, will make the benefits taxable for
   the employee. The amount the employee pays towards the premium is dependent on whether it is paid with pre-tax or post-tax dollars. If it
   is paid with pre-tax dollars, the benefit will be taxed. If it is paid with post-tax dollars, the benefit will not be taxed.


   For example: If the benefit is $1,000 and the the employer pays 75% of the premium (regardless of pre or post-tax) and the employee pays
   25% of the premium with post-tax dollars, $750 will be taxable and $250 will not be taxable.


   Source: 2014 Council for Disability Awareness Long-Term Disability Claims Review, based on 2013 claims.

Buhr & Associates