Disability insurance has become an increasingly valuable part of a comprehensive employee benefits package. Not only does disability insurance fill the gaps in financial protection offered by other programs like Social Security, but it’s also a highly sought-after component of a competitive benefits package for employers who need to attract and retain talented employees.

Looking for more insight into whether your organization should offer disability benefits? Connect with our team at CBIZ today.

About Employer-Sponsored Disability Insurance

Employer-sponsored disability insurance coverage is an important benefit for every employee. For most workers, the ability to earn a living is their most significant financial asset, and a lengthy period of disability can be devastating. Employers can help protect against that risk by providing group disability income insurance — a group insurance product that provides income replacement benefits to an employee should they become sick or injured and unable to work.

Disability insurance replaces a percentage of pre-disability income if an employee cannot work due to illness or injury for a specified time, protecting workers and their families against financial catastrophe by helping them meet daily expenses and maintain their standard of living.

Why Provide Disability Benefits?

One in 4 working adults will become disabled before reaching retirement age, according to data from the Social Security Administration (SSA). Unfortunately, many workers are unprepared to lose their income or unable to afford unexpected medical expenses. Income or job loss due to an illness or injury can be devastating for employees and their families.

Providing disability benefits can help mitigate this risk for employees while also serving as an attraction and retention tool for employers. In addition, disability insurance is relatively inexpensive for employers to offer. The costs for STD and LTD insurance make up approximately 1% of an organization’s total compensation costs based on sampled data from 7,400 private industry employers, according to the U.S. Bureau of Labor Statistics (BLS).

Employers who integrate their health and disability benefits can improve their workforce’s overall health by coordinating employees’ care, allowing for earlier interventions and decreased workplace absenteeism.

Types of Disability Benefits

Disability benefits can take many forms. While short-term disability insurance and long-term disability insurance are the most common, long-term care insurance, critical illness insurance and paid leave programs are also types of disability benefits. Understanding the different types of disability benefits can help employers evaluate and determine which benefits to offer their employees.

Short-term Disability Insurance

Short-term disability (STD) insurance replaces all or a portion of an employee’s income due to a temporary disability. Under STD plans, employees receive a percentage of their income, typically 40% to 70% of their base pay, but employers can allow employees to supplement their STD benefits with paid sick leave or other benefits. A short-term disability insurance policy is paid either fully or partially by the employer, and the median length of STD insurance coverage is 26 weeks, according to the BLS.

To qualify for short-term disability coverage, an employee files a claim under their insurance policy. The employee must prove their illness or injury qualifies as a disability under the plan’s terms. STD insurance generally requires employees to wait for a short period of time before they start receiving benefits to discourage abuse and because many employers’ paid-time-off benefits cover shorter absences than those covered by STD insurance.

Since the income employees receive under short-term disability coverage is paid by insurance companies, employers have the financial resources and flexibility to hire temporary or contract workers to fill workforce gaps without experiencing high labor costs. In states that don’t require employers to participate in disability income plans, employers can offer fully, partially or noncontributory short-term disability insurance plans.

Long-term Disability Insurance

Long-term disability (LTD) insurance provides employees with income for long-term illnesses and injuries. Employees generally receive 60% to 80% of their base pay; however, some employers’ LTD plans offer more limited income replacement benefits. Similar to STD, employees receive income benefits until they’re able to return to work or have exhausted policy limits.

Long-term disability benefits requirements tend to be more rigorous than STD because workers need to demonstrate they’re unable to perform any job, not just the job they were working prior to the illness or injury.

These plans often work together with STD, so when an employee exhausts their STD benefits, LTD benefits continue to provide the employee with income. As with short-term disability benefits, long-term disability coverage does not provide workers with job protection. Employees who become permanently disabled may continue to receive long-term disability benefits through their retirement date or until they’re eligible for Social Security disability benefits.

Long-term Care Insurance

Long-term care insurance provides employees with coverage to treat chronic illnesses and disabilities outside of a hospital when they can no longer care for themselves. These policies cover services such as home health care, nursing home care, hospice care, assisted living facilities care and respite care. Long-term care insurance can help employees safeguard their financial futures, and employers tend to offer this benefit to help their aging workforce.

Critical Illness Insurance

Critical illness insurance gives employees a fixed lump-sum payment after being diagnosed with an illness that’s covered under the policy. These policies may cover conditions such as kidney disease, stroke, heart attack and cancer. Payments are made directly to the employee and can be used to cover deductibles, co-payments, household expenses and other costs. Critical illness insurance premiums are typically paid by employees.

State & Federal Disability Programs

In some instances, employees may be entitled to disability benefits under state or federal law. For example, the FMLA provides eligible employees of covered employers with up to 12 weeks of unpaid, job-protected leave for certain family and medical reasons. Under the Americans with Disabilities Act, employers must consider providing disabled employees with reasonable accommodations. Leave from work may be an accommodation as long as it’s reasonable and doesn’t create an undue hardship for the employer.

Employees who experience work-related injuries and illnesses resulting in a disability may be entitled to workers’ compensation benefits. Such benefits are mandated in most states and provide employees with wage replacement and medical benefits. Additionally, the SSA provides disability benefits to workers as long as their disability will last for at least 12 months.

Several states have enacted their own leave-related laws, many of which provide injured or disabled workers with job-protected leave. Employers should consult with legal counsel to discuss any state-specific disability or leave requirements.

Learn More About Offering Group Disability Benefits

Disability benefits can provide sick and injured workers with financial stability and peace of mind when they’re unable to work. Understanding the different types of disability benefits — and their value — can help employers decide which benefits their employees need and desire. Offering these benefits can be a powerful tool to improve an organization’s attraction and retention efforts.

For tailored guidance on disability benefits, connect with our team at CBIZ Employee Benefits today.