Navigating Benefits

What Is Long-Term Disability? A Beginner’s Guide for Employers

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Posted by February 26, 2017

As you prepare to meet with your insurance broker, you’re researching the types of benefits you currently do not offer to see if there’s anything that would be a welcome addition to your benefits package. You already offer short-term disability, and your employees enthusiastically enrolled when it became available, but what is long-term disability? Is there really a need to offer multiple disability policies?

If your employees see the benefit of a short-term policy, chances are they’ll find a long-term policy enticing as well.

What Is Long-Term Disability Insurance?

Long-term disability is an employee benefit used as a partial income replacement when an employee becomes disabled and cannot return to work after a significant amount of time. The money these policies pay out can be used for any life expenses, such as a paying a mortgage or putting gasoline into the car.

The Council for Disability Awareness reports the duration of an average long-term disability claim is 34.6 months. While some of your staff may be able to dip into savings to cover the cost of an accident or illness, those funds quickly dry up. Most individuals plan for only three to six months of financial coverage, so what happens when there are no other funds? How will your employees survive?

How Does Long-Term Disability Work?

Benefits for long-term disability policies are paid out to employees who are unable to work at a percentage of their salary. Some policies are designed to pay the entire duration of your disability up until age 65, but others have a time limit which dictates how many years the company will pay out a long-term claim (understanding, of course, that a claim will close if the employee is no longer considered disabled).

The policy will pay out a percentage of an employee’s salary if he or she were to become unable to work—usually 50 to 80 percent—with a specified maximum limit for each pay period. The percentage and maximum limit will vary for each employer plan, so be sure to obtain details so you can explain it correctly when an employee asks, “What is long-term disability, and how much will it pay me if I’m unable to work?”

Here’s an example: An employee’s monthly salary is $5,000; 60% of $5,000 is $3,000. Because $3,000 is less than the plan’s maximum benefit of $6,000 (monthly), benefits will be paid to your employee in full at $3,000 every month. So, while your employee may not bring home a regular, full pay check of $5,000, he or she will still receive some income, even if it doesn’t come from clocking in from nine to five.

Why Add Long-Term Disability to Your Benefits Package?

Long-term disability insurance is a popular ancillary benefit as it plays the role of a partial income replacement for what could be an extended period. Where short-term provides a temporary coverage (think maternity leave or a broken bone), long-term disability covers individuals in need of a significant recovery process, such as cancer treatments, or a life-changing event, like an accident, leaving an employee permanently and completely unable to work.

The longevity of long-term disability insurance is what makes the benefit so attractive to your employees. Because it’s impossible to plan for an accident, injury or medical condition, and know precisely how much money needs to be saved, your employees will have confidence that they’re ensuring their future self is well taken care of after they enroll.

Some employees are unable to return to work in just a few months after an illness or injury. Though you might not be able to hold their position open for them after their FMLA expires, the long-term disability insurance you offered previously is helping them stay afloat in their time of need. There’s no better way to say that you’ll always look out for your employees’ best interests.

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