We all hope that employers properly protect their employees and employees’ families from circumstances or events that can materially change one’s life for the present and for the future, such as exorbitant medical bills, catastrophic illness, or death of a primary breadwinner.

These events will likely lead to some form of disability and without the proper insurance coverage available, the affected employees may suffer from not only physical pain, but also from the financial burden an event like this can bring on.

Brokers have to educate human resources managers, risk managers, chief financial officers and other parties responsible for arranging company insurance programs about the importance of offering group long term disability coverage.

There are many staggering statistics showcasing why LTD is such a crucial coverage for employers to consider.

Nearly 1 in 3 Americans will suffer a serious disability between ages 35 and 65, according to the American Council of Life Insurers Fact Book 2001.

Workers are three times more likely to be injured and need disability insurance than they are to die and need life insurance, according to statistics from the Health Insurance Association of America printed in the 2001 edition of the JHA Disability Fact Book.

Finally, the U.S. Housing and Home Finance Agency reported in 1998 that almost 50% of house foreclosures are disability related, and almost half of all bankruptcies filed each year are due to illness and medical bills.

Given these daunting statistics, one may assume that there would be a large emphasis on disability insurance and that it would be one of the initial topics of discussion when brokers start their review of an employer’s benefit portfolio. Unfortunately, group LTD coverage is often the last coverage discussed.

As with any type of insurance coverage, there are instances when employees may never use their insurance benefits even though an employer is paying the premium.

For those employees who use their insurance benefits, the value that LTD offers will most likely will exceed the value of any other employee benefit.

The cost of disability insurance could be as low as $17 per month, while medical coverage for a single employee may cost about $300 per month.

The ratio of “value of benefits,” or VOB, to the cost of coverage may be far greater for LTD benefits than for medical insurance.

Despite the importance of LTD coverage, the Bureau of Labor Statistics reports that only 28% of employees participate in LTD benefits. The percentage of employees participating in medical plans is significantly higher.

The main purpose of disability insurance is for income replacement and asset protection in the event of one of the circumstances initially discussed.. Brokers and consultants need to explain to employers that income protection associated with LTD is “the centerpiece” around which all the other benefits revolve.

Without disability coverage, there is a large void in an individual’s financial stability; putting the individual at great risk should a serious injury or debilitating situation occur. Unless one has substantial savings, it is virtually impossible to pay for medical bills or for other expenses that are required to maintain one’s current lifestyle if disabled.

There is a direct correlation between disability and lost productivity for an employer. This lost productivity involves what is commonly referred to as the “hidden costs” of disability.

When an employee is out on disability, there is a risk that the employer will overload the workload of “at work” employees which diminishes the productivity of that population of workers.

In addition, there was an independent study performed by The Hartford pertaining to disability literacy. The study showed that employee recovery time for those with disability insurance is significantly less than employee recovery time for people without disability coverage. Moreover, in that study, researchers reported that employees without disability coverage are two times less likely to recover than those with disability coverage.

All of these factors directly correlate with lost revenue for companies that do not have managed disability programs for their employees.

Additionally, disability carriers may include “return to work” programs and “worksite modification” benefits, which incentivize employees who are partially disabled to maintain a productivity level that is beneficial to the employer through personalized programs offered by the disability carrier. These programs help employees to get back to work, which lessons the effects of disability on the employer.

Mike Simonds, senior vice president of product development at UnumProvident Corp. has noted that disability claims can account for more than 50% of medical expenditures.

Having an additional layer of “claims management,” along with the coordination of disease management programs, could significantly influence the cost of a company’s future medical premiums, by allowing disability carriers to work in conjunction with medical vendors to control and coordinate employees’ treatment plans.

This could potentially save a client money by using a tandem approach to manage overlapping claims.

Although the cost of group LTD coverage may be dwarfed by the cost of medical coverage, the coverage certainly packs a powerful punch in the reward the product offers to both employees and employers.

LTD is perhaps the most pivotal coverage that an employer can offer because of the many different ways in which the product intertwines with the employee’s and employer’s lives.

A benefits advisor should be sure to talk about the value of group LTD and describe all product components, and not let this product be the “last thing discussed.”

John E. Cicchelli is a vice president in the employee benefits and consulting division of HUB International Northeast, New York, a HUB International Limited. He can be reached at john.cicchelli@hubinternational.com.

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Kicker: Tips

Brokers reviewing an employer’s benefits program need to make sure that the employer’s LTD coverage is not treated as a pure commodity.

The brokers should:

1) Be able to discuss value of the coverage vs. the cost of coverage in implementing an LTD plan.

2) Understand all of the components and features that an LTD plan has to offer, along with the claims process associated with each carrier.

3) Review the potential financial impact to the company in the event of a disability and how LTD coverage can help absorb that impact.

4) Make sure that the cost of the coverage is not the sole driver, but focus on the contractual content and carrier resources offered.