Is Your Paycheck Insured?

What’s trending in the group-disability insurance market

by Kathy Plummer

Most benefits advisors would probably agree that the need for disability income protection is more important than ever today due to little savings for emergencies, higher out of pocket costs for healthcare and an aging workforce with increasing incidence of disabilities.

Yet over the past fifteen years, the percentage of people covered by this insurance has not changed much. To improve market penetration and expand financial protection coverage, carriers have now begun developing more flexible disability products to meet a broad range of employee needs.

Continued financial pressures

Although the U.S. economy continues to show signs of improvement, many people still face ongoing challenges with their finances. According to one survey, currently three-quarters of working people always or sometimes live paycheck to paycheck1, while half of all U.S. households would have difficulty raising $2,000 within a month if needed.2

In addition, because of heavy student loan debt, even young people today are realizing the importance of income protection in managing their finances and an important aspect of an overall financial plan. What many employees may not realize is that the possibility of experiencing a disability at any age and being unable to work is very real. It’s estimated that more than one in four of today’s 20 year-olds will become disabled before reaching age 67.3

Employees may also not be aware that approximately 90 percent of all disabilities are caused by illnesses, not accidents as many people believe.4 In addition, once an individual has been disabled for 90 days, the average length of disability is four years.5 If a breadwinner is the person who becomes disabled, going without a paycheck for this long could be catastrophic for a family’s financial situation and way of life.

Making a safety net available

Despite the clear need for protecting a family’s income, close to 70 percent of today’s working population – more than 75 million employees – are not covered by disability insurance at work, according to the Bureau of Labor Statistics.

For the one in three American workers without access to employer-provided disability coverage, staying financially solvent could be a major challenge in the face of a disability. The good news is that the large case market rate of penetration is slightly more than 50 percent, yet that means almost half of all employees in these companies still remain without coverage.

These statistics point to the significant opportunity that exists for brokers and advisors to expand the reach of financial protection. Fortunately, carriers are making it easier than ever for employers to offer group disability insurance to all employee segments. With new flexible plan designs and funding options, not only can more employees be covered, but in some cases employers can offer the benefit with no negative impact on their bottom line.

Expanded funding options now range from affordable employer-pay-all plans to blended funding arrangements to 100 percent employee-paid voluntary plans, ensuring that group disability benefits can easily meet the budget needs of both employers and employees. Not surprisingly, many employers anticipate additional cost-sharing with employees in the future, as recent research has indicated as many as 30 percent expect to see this trend over the next three to five years.6

Extending the reach

More relevant plan designs are also making it easier for advisors to offer corporate clients of all sizes a group disability product that is right for them.

Today’s coverage can be tailored to meet the needs of smaller companies, for example, or to customize benefit levels for staff and hourly workers along with different options for high wage earners. Even part-time employees may be eligible for coverage in some cases. With the average annual premium per employee for group LTD now at $245 and $214 for group STD, disability income protection is an affordable option for employees at all salary levels.7

Making this coverage even more attractive is the fact that many contemporary plans feature guarantee issue so employees have no medical questions to answer if they enroll at the initial offering. In addition, having flexibility to offer coverage in a percent of salary or flat dollar increment basis, brokers can work with employers to map out exactly what a particular workforce needs and design coverage suitable for all.

Will they buy it?

Research shows that as a result of the recent recession, workers today not only appreciate the need for financial protection, but most say they want the coverage and are willing to pay for it.

In fact, 56 percent of respondents in one survey said they would pay all of the $30 monthly premiums to gain income protection, while 86 percent said they would pay half the cost.8 A selling point that advisors should not overlook: nine out of 10 workers said they thought all employers should offer disability insurance to their employees. And 85 percent of disability beneficiaries agreed that employers should automatically enroll new employees in disability insurance, allowing them to opt out of the coverage if they do not want it.9

One advantage − automatic enrollment has been shown to significantly increase plan participation rates, with some employers enjoying rates as high as 60 percent to 80 percent of employees choosing the coverage. With this knowledge, the best advice advisors can give their clients is to offer coverage that’s easy to understand with fewer employee choices, usually no more than three.

Advisors can also assist employers in designing enrollment and educational materials that resonate quickly with employees. Providing an interactive calculator, for example, to show them how much money an employee would need if not working due to disability can help encourage workers to enroll. To further help increase participation rates, employers should consider offering employees the option to purchase coverage through payroll deduction.

Because the average disability absence results in lost productivity costs of close to $23,000 per claimant and a “total cost” of more than $35,000,10 employers shouldn’t have to be convinced of the importance of offering an income protection benefit. Not only can group disability insurance help employees stay at work or return to work in the event of a disability, but it can also provide a needed safeguard to help employees and their families address the financial risks they may face.

 Endnotes
1. CareerBuilder.com, “Share of U.S. Workers Living Paycheck to Paycheck Continues Decline from Recession-Era Peak, Finds Annual CareerBuilder Survey” (Sept. 25, 2013; accessed Oct. 9, 2013).
2. Lusardi, Annamarie, et al, “Financially Fragile Households: Evidence and Implications,” National Bureau of Economic Research Working Paper 17072, May 2011.
3. Social Security Administration, “Social Security Basic Facts” (Apr. 2, 2014; accessed Sept. 23, 2014), http://www.ssa.gov/pressoffice/basicfact.htm
4. Council for Disability Awareness, “Chances of Disability: Me, Disables?” (2012, accessed Jun. 25, 2013), http://www.disabilitycanhappen.org/chances_disability/disability_stats.asp.
5. Society of Actuaries, “Group Long-term Disability Experience Table (2012). The most recent source of its kind.
6. Employee Benefits News, Flashpoints: HR and Benefit Issues Confronting Employers (2012).
7. Gen Re, Group Disability and Group Term Life Market Survey, (2013).
8. Consumer Federation of America and Unum , Employer-Sponsored Disability Insurance: The Beneficiary’s Perspective (2013).
9. Consumer Federation of America and Unum , Employer-Sponsored Disability Insurance: The Beneficiary’s Perspective (2013).
10. Integrated Benefits Institute, Impact of Integrating Health & Disability Data (2006). Cited in CDA, “Employer Resource & Information Center” (2012; accessed Dec. 21, 2012), http://www.disabilitycanhappen.org/employer/overview.asp.