What's The Damage?

Adding disability coverage to your benefits package
Magazine Contributor
2 min read

This story appears in the July 2000 issue of Entrepreneur. Subscribe »

If you think disability insurance is something only corporations can afford to offer employees, think again. Granted, disability insurance isn't cheap. But before you say no simply because of the cost, take a few minutes to actually look behind the dollars.

Larry Schneider, a disability insurance specialist with the Disability Insurance Resource Center in Reston, Virginia, says offering disability coverage builds morale and loyalty-two critical issues in today's labor market. It also reduces companies' responsibility to continue paying disabled workers in situations where they might feel obligated to do so. And although workers are more likely to carry life than disability insurance, the reality is we're at greater risk of becoming disabled than dying during our working years.

You have three ways to handle the cost of disability coverage: company-paid, employee-paid or split between the two. If you opt for employee-paid or splitting the cost, keep in mind that many insurers require that a certain percentage of employees participate in a group plan. So make sure your employees seem committed before moving forward.

Schneider also advises considering these issues as you evaluate policies:

  • Definitions: You want a policy with a good definition of the term "total disability," Schneider says. The policy should define someone as disabled if they're unable to perform their own occupation. Many policies won't consider someone totally disabled-even if they can't perform their particular job-if they still have skills that could be transferred to another job.
  • Options: Insurers typically offer a variety of options, which naturally carry varying premium rates. Some of the more significant options include the benefit period (how long benefits will be paid-very few policies offer lifetime benefits), cost of living adjustments (to allow benefit recipients to keep up with inflation) and partial-disability options (which address to what extent someone must be disabled to qualify for benefits, how that is determined and whether the benefits are residual or proportional).
  • Rate guarantee: How long will your rate be guaranteed?
  • Exclusions: Be sure you understand what the policy doesn't cover. Instead of group coverage, you may want to offer employees the opportunity to purchase their own policies, which you can subsidize if you wish. Although underwriting standards are significantly tougher and the cost is much higher, the benefits of individual policies are greater.

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