Loss of Income. Are You Protected?

By Kara Spence
Financial Analyst
Kara.Spence@McGriff.com

As open enrollment rounds the corner each year, most of us are focused on meeting enrollment deadlines, which can cause us to speed through the process. Often one can be so focused on what medical, dental, and vision plan to enroll in that they forget to allocate adequate attention to the other benefits offered, like disability insurance.

One of the most devastating events that a person can face is an unexpected loss of income. This can affect anyone, regardless of your level of compensation. We all do our best not only to set a realistic household budget but also to set aside some money for the future. Some of us have our finances organized to a “T,” while others are trying to figure it out along the way. No matter which type you are, it is important to remember that disability does not discriminate! So, as you chug along through your enrollment process, you must ask yourself, “Are you protected?”

Many employers offer paid sick days, but what happens if you have exhausted those days and are unable to return to work?

In the event that you become disabled and unable to work, you may be eligible for lost income replacement through an employer-sponsored disability plan. This may be 100% employer-paid, partially employer-funded, or a 100% voluntary plan. Depending on how long you are out of work, you may be eligible for Short-Term Disability and/or Long-Term Disability. Let’s take a look at Group Disability Insurance, how it works and why it is so critical to your employee benefits package.

Once your sick leave has run out because of a disability, illness, or non-job-related accident, you may be eligible for Short-Term Disability as outlined by the plan.

Disability plans generally have a defined waiting period before an employee becomes eligible. STD plans usually kick in on the 8th or 15th day of disability. Once eligible, the plan usually provides a percentage of income for a specified duration. This Maximum Benefit Duration may be measured by days or weeks, depending on the plan. Durations of 12 Weeks or 90 Days are common to many group plans with the percentage of income up to a maximum weekly benefit.

Once you have exceeded the maximum STD benefit duration, your Long-Term Disability plan should come into play. It is extremely important as advisors to ensure that these benefits align so that there is no gap between an employee’s income protection. For example, if the maximum STD benefit duration is 90 days, then your LTD plan should include an elimination period of 90 days providing a seamless transition. Typically, the maximum benefit duration for a LTD plan is outlined using two time periods (the first 24 months of disability & the months thereafter) up to either age 65 or Social Security Normal Retirement Age (SSNRA).

These two time periods are contingent upon your definition of disability as defined by the plan. It is critical to know how your plan defines disability.

A common example of a disability definition is the ability to perform the job duties of your “Own Occupation” for 24 months, then “Any Occupation” thereafter. “Specialty Occupation” definitions should be in place to protect employees that have an industry specific occupation with highly specialized knowledge such as a brain surgeon or an attorney with a concentration on a specific area of the law.

Once the eligibility of disability has been made, the amount of income must be determined.

Earnings must be specifically defined in order to calculate the percentage of benefit to be paid. An industry standard example would be Annual Salary, excluding bonuses and commissions. In addition to these three types of income, there are a number of variations and combinations of income and taxation stipulations that need to be outlined.

The world of disability can be extremely complicated and confusing, and it is our job as a trusted advisor to ask the questions in order to help guide our clients to the right level of protection.

Regardless of the type of employee population or demographic, the contract terms should be adequate and precise to cover an employee at their time of need.

Are YOU Protected???