Should You Offer Group Disability Insurance to Your Employees?

If you have 10 or more employees, a group disability benefit may be a valuable addition to your employee benefits package.

Group disability plans typically provide a totally disabled covered employee with a benefit of up to 60% of their pre-disability income, to a specified maximum, such as $10,000 a month. It can help to cover personal expenses as well as provide business overhead protection.

Advantages of a group plan include:

• Plan design flexibility. In many cases, employers can elect a plan design that fits their budget and works for their employees. For example, an employer may choose a guaranteed issue plan, which gives employees the option to purchase coverage regardless of their current health condition.
• Lower premiums. Group rates tend to be lower than individual rates.
• Potentially portable. Depending on the plan design, covered employees may be able to take their coverage with them if they leave the company.
• Premium payment flexibility. Premiums can be paid by the employer, the employee, or a combination of the two, using pre-tax or after-tax dollars.
• Tax deductible premiums. You can take pre-tax company-paid premiums as a business tax deduction.
• Recruitment and retention tool. Having group disability insurance in your benefits program helps attract and retain quality employees.

Drawbacks to group disability plans include:

• Total disability definition. Many group policies require an insured to be totally disabled to receive benefits.
• Taxation of benefits. If you offer the perk of paying the premiums for your employees, any benefit they receive will be considered taxable income for them, which reduces the actual dollar value of the benefit.
• Benefit caps. Benefit amounts are capped, which may make it difficult for you and your higher-paid employees to replace a large enough percentage of income.

Game Plan

When offering voluntary disability benefits or buy-up options to your employees, access to information is important. Determining how much disability insurance your employees need and can afford requires them to examine their income, assets, expenses and liabilities, and then to figure how long they could keep everything going if they were unable to work. Carriers will typically offer benefit communications that provide this education, but this information is readily available through online sources as well. Here are seven things to consider before buying disability insurance.

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