A new survey by the International Society of Certified Employee Benefits Specialists indicates that employers are often unaware of short-term disability benefit costs, and that their employees don’t realize the value of the benefit.
Unfortunately, that's not news to me: over the years, I've found that folks get so caught up in the issues surrounding health coverage that they give short shrift to insuring that which pays for it: the ability to make a living.
I've often used this analogy when discussing the importance of disability income insurance: suppose you had a goose that laid a golden egg every day. You'd come to rely on it for at least part of your income, wouldn't you? So naturally, you'd call up your homeowners agent and have that goose insured, right? Of course right. So why don't you think it's important to insure the real golden goose?
For a lot of folks, buying disability insurance means glomming on to the group plan at work. There are some really powerful reasons why this is not optimal, but we'll confine ourselves today to a discussion of these group plans. They generally come in two "flavors:" short term and long term. Short term, as its name implies, provides benefits for a brief period of time (usually up to 6 months), and is designed to help folks either get back on their feet, or find alternate income arrangements. Long term disability plans, on the other hand, typically kick in after 6 months, and offer benefits for years, sometimes all the way to retirement.
The aforementioned survey found that -- no surprise -- most employers handle disability through payroll. What was a surprise is that almost half of those employers had no idea how much they spend on short term disability benefits as a percentage of their payroll. What's more, the employees who responded to the survey ranked medical insurance, 401(k) plans, and paid time off as more valuable than disability. Guess they have an extra golden goose out in the garage.
According to industry experts, about 1 out of every 3 employees will become disabled for at least 90 days at least once during their working years. Of course, if you're one of the "lucky 2" it's no big deal. But if you do become disabled, having such a plan already in place may be the difference between keeping, and losing, your home. And it's surprising to learn that most employers are unaware of how much they spend on their short-term disability benefits.
Why is this so surprising?
Well over 80% of the survey's respondents offer a non-contributory disability benefit (i.e. the employer covers the entire cost). That seems high to me: most small employers, if they even offer such a plan, do so on what we call a "voluntary" basis. That is, folks that want to buy the plan can do so (on their own dime), while those who don't aren't forced to.
Whatever configuration floats your own boat, it's always a good idea to review what, if any, disability plan you have, before you need it.
Henry Stern, LUTCF, CBC is an independent insurance agent in Dayton, OH. A licensed Continuing Education instructor for Ohio and Kentucky, he has well over 20 years of experience in “the biz.” He blogs every day (or so it seems) at InsureBlog.