As I was reading a recent article about a Guardian Disability Insurance survey, it got me thinking about the reasons why so many small businesses are shying away from incorporating Disability Insurance (DI) into their Group Benefits strategy. I wanted to discuss some of the factors that play into why fewer small businesses may be offering DI as well as share some of the successes that we have had in helping small business clients better understand the advantages of Disability Insurance. As mentioned in the article, there are not nearly as many small businesses offering DI to their employees today compared to the larger group space.
This is due to three key reasons.
I’m Too Busy to Understand All This DI Nonsense!
Do you understand the true cost and real value that Disability Insurance can offer? If the answer is ‘no’, don’t worry, you’re not alone. Often time the lack of understanding and stems simply from a lack of resources.
In the larger group space you have dedicated HR departments, often times with entire benefit sub-departments who are well versed in the benefits arena and understand the importance of financial protection for the Executive team, management and even the rank and file. This is why over 90% of larger businesses offer Disability Insurance protection – they have the time and resources to spend on looking at all the angles, as it were.
Conversely, in the small group space, you may have a business owner, CFO or even controller who is wearing many hats and is tasked with setting up the benefit programs along with all of their other day to day roles and responsibilities. As a result of these limited resources, small business decision makers most often default to the benefits that fill an immediate need – services that employees can go out and use on a daily basis, like health and dental insurance.
What many small business owners fail to understand is the value and long term financial protection that disability coverage can provide. Most employees, and owners for that matter, don’t ever think they will have to be out of work due to sickness or injury, but in reality most of us know someone who has been diagnosed with some condition or who has been injured and has been forced to miss work. We just don’t ever think it will happen to us. When someone is out, if they have disability coverage, their paycheck is replaced by the insurance provider.
I actually wish this coverage was called something else. Labeling protection as “disability” makes people think it is something that won’t happen to them. Did you know the most common short term disability claim is for maternity? At the same time, do you consider someone who is out on maternity leave “disabled”? Yeah, me either.
This is an important factoid, but to me, the true value in disability coverage comes in the form of long term disability.
Most long term disability contracts will pay benefits (replacement income) for anywhere from five years up until someone reaches their normal Social Security Retirement age (you will see the acronym SSNRA a lot when talking long term disability). There aren’t too many benefit programs that you can put in place that can provide financial benefits for 10, 15 or 20 years, but that is exactly what long term disability does. From a pure comprehension standpoint, I think we all need to think about disability protection as paycheck or income protection. It’s that simple because that’s exactly what DI helps with, replacement of a worker’s income.
But Disability Insurance Costs A Lot, Right?
Second, there seems to be a common misconception that disability coverage is going to be extremely expensive. Traditionally, short term disability is slightly more expensive per month while the price of long term disability is usually a fraction of short term DI. We’ve actually had several small business owners look at individual disability coverage outside the business versus paying for DI through the business. The results? In almost every scenario it was more affordable to offer coverage to multiple employees and the business owner through the business versus paying for a single business owner disability policy.
In some cases, a business owner may want to buy a smaller individual policy to layer on top of the group coverage, but even in those situations it makes sense to have the group sponsored coverage in place because that allows you to pay for the bulk of the coverage at a discounted cost. Overall, when compared to the cost of health insurance, and when we run our internal scenarios, total STD and LTD monthly premiums tend to equate to about 10% of what a company is spending on health insurance.
There Are Creative Approaches to DI? Yes!
Last, but certainly not least, many business owners feel that they don’t want to spend extra money on benefits for their entire company, especially if they are in a business that has a lot of turnover or is seasonal with a lot of hourly workers. What these business owners can fail to realize is that, unlike with other types of insurance, with disability you can get creative and only offer disability coverage to your management or executive team.
You don’t necessarily have to offer it to all of your employees. In reality, the employees that are more likely concerned with this type of coverage and most appreciative of it would be your more seasoned employees, so this makes for a perfect additional benefit that you can offer to keep your highly skilled managers and executives in place, show them that you appreciate them and not have to spend to offer to everyone, all while getting disability protection in place for yourself at a deeply discounted rate compared to what it would cost for an individual DI policy.
Another approach many employers will take is to pay for the long term disability protection but then allow employees who would like the short term protection to pay for it through payroll deduction. This is a great way to get the employees involved and get their “buy in”, to get the more important long term protections in place and still have a great program.
A Final Thought
Once again, here’s the link to the article I read recently that got my wheels turning on this subject – https://insurancenewsnet.com/innarticle/smaller-employers-less-likely-to-offer-di and you may enjoy some of our DI videos talking about disability plans and how they work as extra resources. I hope that this brief outline provides a better understanding of disability coverage in general and provides some ideas on strategies you can use as a business owner to help protect, at a minimum, your key employees on a long term financial basis. If you have any questions on this or any other benefits related items, please don’t hesitate to let us know!
Watch Our Videos on Disability Insurance!
About Holloway Benefit Concepts
HBC was founded in early 2011 by Ryan Holloway. After serving over 8 years on active duty in the US Marine Corps, Ryan transitioned from being a full-time marine into an HR professional in early 2003. This began a journey and awoke a passion for helping companies who value their employees. After spending time working with a COBRA and FSA Administrator, an insurance company, and a large brokerage, Ryan realized that there were more unique and creative solutions for businesses than other companies were willing or able to realize. Seizing on his own entrepreneurial spirit, Ryan set out to found an independent agency designed to provide unique and original insurance solutions. To learn more about HBC, visit https://hollowaybenefitconcepts.com/