Group Short and Long Term Disability Insurance

1. Group Short and Long Term Disability Insurance

2. Course Objectives • To provide an understanding of group disability insurance and the disability market with particular emphasis on . . . • Sick-Leave • Short-Term Disability Plans • Long-Term Disability Plans • Voluntary/Worksite Plan

3. Top seven chronic conditions causing work limitations Society of HR Mgt, WorkplaceVisions; World Jea;tj Prgamozatopm 2001

4. Distribution of Coverage JHA Disability Fact Book 2003/2004 Edition Employer pays all 64% 63.7% ER and EE 16.4% 15% Employee pays all 19.5% 21.3%

5. The Current Market Position • In a survey of business with 1-99 employees, 52% of the firms offered LTD and 48% offered STD • Larger groups (500+) are more likely to offer disability benefits vs smaller employers (<100 ees) • LTD: 90% vs 77% • STD: 84% vs 62% • Manufacturing firms are more likely to offer STD (70% vs 55%) then LTD (61% vs 71%) then non-manufacturing firms JHA Disability Fact Book, 2003/2004 Edition

6. Self-Funded or Sick-Pay Plans • Typically self-funded by the employer • Often tied to tenure • Usually capped at a certain number of work-days, ie., 10 days • Almost always ‘total only’ • Needs to meet employers needs and coordinate with other plans

7. Short-Term Disability (STD) Plans Common Plan Design Parameters • Benefit: 60% or 662/3 % to $500 • 0/7/13 or 0/7/26 • Non-occupation • Family integration

8. Long-Term Disability (LTD) Plans Common Plan Design Parameters • Benefit: 60% to $6,000 • 90 or 180 day elimination period • 2 year own occupation • Zero day residual with partial • Family integration • 2 year mental and nervous

9. Own/Any Occupation • Own occupation typically 2,3,5 years or own occ to age 65 • Unable to perform all the material duties of own occupation on a full-time basis for selected # of years • Any occupation begins after own occupation period ends • Unable to perform the duties of own or any other occupation for which person is fitted by training, education, experience, age and physical and mental capacity

10. Insurable Income Options • Basic Monthly Earnings • With or without commissions and/or bonuses • 12 or 24 month average • W-2 Earnings • S-Corporation Earnings • Partnership Earnings • Teacher’s Earnings

11. Other Income Benefits • Workers’ Compensation • Social Security • Other Compulsory Group Disability • Government Retirement Disability • Employer’s Retirement Disability • Unemployment

12. Common Income Offsets Social Security • Primary only • Primary and family

13. Primary Only LTD Benefit $4,600

14. Primary and Family LTD Benefit $4,250

15. Income Not Typically Offset • 401k plans and 403B plans • VA benefits • Profit sharing not funded by employer • Thrift plans • IRAs • Tax sheltered annuities • SOPs – stock ownership plans • Retirement benefits • No-fault auto insurance

16. Worksite • Payroll • Simplified Issue • Individual • Optional Riders • Group • Guarantee Issue • Participation requirements

17. Payroll • Typically include individual, payroll deducted products • Usually ‘simplified’ issue with limited medical underwriting • Portable • Often with limited plan design, ie., benefit duration • Often sold on an ‘indemnity basis’ versus as a percentage of one’s income ($500 per month)

18. Group Voluntary • Typically a group chassis, with age-brackets • Premium is calculated by taking the rate (either age-bracket or composite) times the employee’s covered monthly income • 60 % of covered earnings • Typically Guarantee Issue during the ‘open enrollment’ and requiring Evidence if a late enrollee • Usually require some minimum participation level • Limited portability

19. Core-Buy Up • Increasingly popular option • Employer purchases a base plan and allows the employee to ‘buy-up’ on a voluntary, payroll deduction mode • ‘Buy-ups’ can include benefit duration, benefit amount, elimination period • Can help stabilize the employees cost and allows the employee to purchase on a group basis with price breaks and guarantee issue

20. Core-Buy Up Sales Example • Benefit Plan DesignCore PlanCorePLUS • Monthly Earnings $5,000 $5,000 • After-tax income $3,500 $3,500 • Benefit Plan 50% to $5k 60% to $6k • Gross benefit $2,500 $3,000 • Taxable benefit $2,500 $1,500 ($3kx.65) • Benefit not taxed $0 $1,050 • Taxes (fed+state) 30% 30% • Total Tax $720(2,500 x .30) $585(1,950 x .30) • Net (after-tax) benefit $1,750(2,500-750) $2,415(3,000-585)

21. Core-Buy Up Options • Benefit Duration – The employer purchases a plan with benefits payable for 2 years or 5 years and the employee purchases protection to age 65 • Benefit Amount – The employer provides a limited benefit amount, ie., $1500/month and the employee purchases a higher maximum, ie., $5000/month using after-tax dollars thus creating a federal income-tax free benefit for the higher amount • Elimination Period – Purchasing a lesser elimination period versus the employer provided plan, ie, buy down the e.p. from 180 days to 90 days

22. Final Thoughts • Group disability insurance is more necessary now then ever • Most employees are living close to financial hardship and do not have the personal savings to withstand a work absence • More options for providing disability plans to your employers and their employees exist then just a few years ago • Your employer groups are looking for advice and counsel on plan design

23. Questions?