Employee Benefits 101: Long Term and Short Term Disability Insurance
In this post, we’re going to be talking about disability protection. You’ll also see it referred to as “DI”, or disability insurance. But first, let’s start high-level before we get into too many specifics.
What is Disability Insurance?
If you want to think about it, it’s basically paycheck protection. As an employer, if you’re offering disability coverage, it’s going to protect your employees in the event they get sick or injured and they cannot come to work. In effect, it’s going to replace a portion of their income. Another key benefit of disability coverage? It can be tailored to suit different employee’s needs. It’s not as regulated as health insurance, so you can tailor a certain benefit for your management and your executives, maybe have a lesser benefit for hourly workers and larger benefit for executives.
There are essentially two ‘flavors’ of disability coverage, short-term and long term. Let’s walk through each.
What is short term disability insurance? Well, you can think about it in those terms – it’s disability coverage for the short term. Most short-term disability plans will typically last 90 days up to 6 months – sometimes you’ll see them go out for a year, but basically it bridges the gap between your initial disability and when the long term disability protection kicks in. Typically employees will receive a paycheck or a benefits check weekly. Once you transition to long term that frequency actually changes a little bit.
Another thing to consider from an employer perspective, the number one claim on short term disability is typically Maternity. If you have employees that are starting to have families it might be something to consider and a very helpful benefit while a mother’s out on maternity leave. If you have an office like us, we don’t have a lot of risk on paper since we work in an office setting, so short term disability coverage is very affordable.
But what happens if an employee’s circumstance keeps them out of work beyond the short term period? We talked about how short term claims were paid weekly. Once you transition to long term disability insurance, that beneficiary, that employee or former employee, will receive checks on a monthly basis versus weekly. That’s a big difference!
Let’s talk about the benefit itself.
Remember, disability coverage protects you, it keeps you with income coming in if you’re sick or injured and you cannot go to work. When you transition from short term to long term, and this comes down to plan design (so business owners this is something you’d be involved in with your agent) long term disability is typically going to back up and ‘kick in’ immediately once the short term ends, sometimes after the 90th day, sometimes after 6 months, sometimes after a year. If someone’s still on claim then they would transition to long term. The big difference here? Long term disability insurance plans can last up to social security retirement. Some plans only have a 5-year duration, but again, it comes down to the plan design and what you’ve put in place with your agent and the insurance company.
Be sure that the duration of the benefit suits the needs of your employees. Some people don’t need a long term plan that’s going to last until retirement. Some employees or business owners, such as those in a specialized field like a doctor or a lawyer, may want that disability going out to retirement so you have that protection in the event that something major were to happen.
Bridging The Gap
Long term disability is a valuable and key group benefit component for another reason. Most people don’t have a big savings account, and most of us are unfortunately not independently wealthy. Usually once someone’s on disability, or if they’re out of work, they only have enough savings to last 30-60 days, then its couch surfing, moving in with parents, and relying on friends. Disability protection can prevent that from happening!
While long term disability insurance isn’t not going to make anybody rich, it does help keep food on the table, keeps bills paid, and it provides financial stability that you’re not going to have elsewhere. So employers out there who have it, good job! If you don’t have it talk to an agent and get it in place!
Finally, long term disability insurance really speaks towards your management level folks and your executives. They’re going to be looking for something like this when they come on board – especially if you’re trying to steal them from a bigger company. Management or executive level only disability plans are available and can be customized to suit you and your company’s needs, even if it’s management level only. You may have heard me say this before, but these types of benefits can also help with recruiting.
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Watch Our Series On Employee Benefits 101: Intro to 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/