Almost everyone who buys a home or a new car doesn’t hesitate to buy insurance to cover any major expenses that are almost sure to come up.
If you view disability insurance (DI) as paycheck protection insurance, why is it that two thirds of working Americans report that they don’t have DI? Is it not offered by their employers? Or is it because they don’t understand the short- and long-term value of DI?
When faced with employees’ skepticism around DI, advisors should help them understand what DI does, breaking down their coverage options and the implications of each.
Many people think of disabilities as happening to someone else — either at birth or end of life, but the chances of an adult becoming disabled are higher than one might think; in fact, it will happen to just over one in four of today’s 20-year-olds before they retire, causing them to miss work for an extended period, and a paycheck. And, accidents aren’t the only cause of disability among adults; back injuries, cancer, heart disease and other illnesses cause the majority of long-term absences.
Once an understanding of the likelihood of a disability is established, providing a comprehensive overview so individuals understand the role that their employer-sponsored DI program plays in meeting their needs and how it strengthens their financial planning — whether or not they currently have a disability or medical condition — will lead to more employees opting for DI coverage. In turn, this will help employees feel more confident and secure about their financial future.
There are three ways to help employees understand their DI coverage.
Inform Employees About the Basics
First, it’s important that employees know the difference between short-term disability (STD) and long-term disability (LTD). They both provide income, but the benefits they deliver vary. For example, employees need to know that, generally, STD insurance covers periods of six weeks to six months, with premiums often paid by the employer; LTD benefits begin once STD is exhausted, and, in some cases, employers may offer a basic level of coverage either at no or limited cost.
Supplemental LTD coverage may be available to employees during enrollment, and there is also individual coverage that employees can purchase outside of the workplace. How the supplements interact with the basic level of coverage can be confusing, if not properly explained.
There is also a variety of voluntary benefits that offer coverage for more specific types of disabilities, including critical illness, hospitalization and accident insurance. These are usually paid for mostly by the employee and provide a one-time lump payment that the employee can use for expenses like health plan deductibles, utilities, transportation, etc.
And, for those who become disabled, they are often caregivers too, whose employment may be affected. For those adults who have a disability and are caregivers, this is a particularly important component of financial planning. Employees who are or will be caregivers should consider the ramifications if they experience an illness or injury. If they work, they will no longer have a paycheck to pay for the multiple expenses that accompany caregiving. They will also encounter even more expenses to replace the care that they usually provide for a loved one. DI can help supplement their much-needed income during that period.