Small Employers Misjudge DI Risk, Survey Finds

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Small employers greatly underestimate the risk that an employee between the ages of 35 and 65 will suffer a serious disability, according to a recent study by the American Council of Life Insurers, Washington.

Nearly half of the respondents in “Disability Income Insurance: Penetrating the Small-Employer Market” believe the likelihood is one in 50 of becoming disabled. The actual likelihood is one in three, the ACLI says.

The survey examines why some small employers (five to 100 workers) offer disability income insurance coverage to employees and why others decide against it.

“People dont understand that they are much more likely to become disabled than to die during their working years,” Ellen Steel, ACLI disability committee chairman said in a teleconference on the survey results.

They dont understand that disability insurance is “paycheck protection for individuals and families,” she said.

Terri Sorota, ACLI senior counsel, said 82% of respondents have no disability coverage.

“We were stunned by those results and the implications to families,” she said, pointing to the aging of the baby boomer population and the corresponding increase in likelihood that a disability will occur.

Most people who have long-term disability insurance get it through their employer, she said. Large employers are likely to offer it, but most Americans work for small employers and government statistics show that most small private firms do not offer disability income insurance, according to the ACLI.

“We found that small employers, much like the population at large, are woefully ill informed about the possibility of becoming disabled,” Sorota said.

Assuming that the costs are prohibitive is the main reason small employers do not look into disability coverage, ACLI research associate Khari Cook said. Underestimating the likelihood it will be needed is the second reason they choose not to investigate it.

The ACLI asked survey respondents what would make them consider offering disability insurance.

Nothing appeared to be a “magic bullet,” Cook said. “But 55% said if demonstrated that it was affordable, theyd consider adding coverage; if it was shown that it increased productivity, they would be more likely to buy coverage.”

The respondents also said they would first approach a broker. As a second choice, they would go to an insurance company.

Respondents agreed the top three reasons for adding coverage would be if it improved employee performance and attitude, aided in retention and recruiting, and protected the business.

“It is important that small employers understand employees can share in the cost and that disability coverage is not limited to work-related disabilities,” adds Sorota.

“It is clear from these findings that employer awareness of the features and benefits of disability income insurance is lacking.”

Study findings show that small employers who do not offer disability income insurance say that they would be more likely to do so should a worker become disabled (42% of respondents). However, many believe that the coverage is too expensive (77%) or that their business activities do not present a high enough disability risk to warrant coverage (58%).

Conversely, 67% of employers that offer disability income insurance say that providing this insurance aids them in recruiting and retaining productive employees as well as in improving employee attitudes and performance (74%).


Reproduced from National Underwriter Edition, March 3, 2003. Copyright 2003 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.