Short term disability insurance comes in a variety of flavors. In addition to policy features such as elimination period, benefit period, and benefit amount there are group policies, individual policies, and other that fall somewhere in between: group voluntary. Each type of coverage fits a different need for employers, employees, and individuals. This article will highlight the advantages and disadvantages of three policy types: group, individual, and voluntary.
Group Short Term Disability
Group short term disability insurance is an employer paid option. Many companies choose to cover the premium expense for disability coverage on behalf of its employees. Employee benefits are an important consideration for attracting and retaining a quality workforce, and group coverage is one way for employers to set themselves apart.
The primary advantage of group coverage is that all employees participate in coverage. This translates into lower rates, and guaranteed acceptance. With all employees participating adverse selection is eliminated. Adverse selection refers to the tendency for people expecting to need the benefit to purchase coverage more frequently than those not expecting to need the benefit. Lower claims ratios help lower rates. Guaranteed acceptance means that employees with pre-existing conditions can get coverage. There may be a waiting period before gaining benefits for the pre-existing condition, but the employee gets coverage for other medical events that might cause a disruption in coverage.
The primary disadvantage of group coverage is the employer cost and choice. Because employers must bear the cost of the premium, the employer gets to choose whether to offer this benefit to employees. And many employers choose not to buy this coverage for employees, meaning many employees have no income replacement. Another disadvantage is continuity. If an employee leaves the employer, they often leave their disability policy behind.
Individual Disability Coverage
Employees without group coverage or separating from their employer might look to the individual market for coverage. The advantage to this approach is that employees are in charge of the process. The employee or income earner gets to choose the insurance carrier, agent, and policy configurations that best suit his or her needs. And coverage continues no matter where an individual chooses to work.
The main drawbacks to individual policies are cost, benefits, and attainability. Individual policies often cost more than group policies because of the adverse selection factor noted above. Also the benefits and coverage may be more restrictive. For example, coverage options for normal pregnancy are very restrictive on individual policies. There is either no coverage at all, or exceptionally long waiting periods. Furthermore, underwriting requirements can be very harsh. Often only people with crystal clean medical records can qualify for coverage. Anyone who has experienced a medical event may find it very difficult to qualify for coverage.
Voluntary Disability Insurance
Voluntary short term disability insurance represents a fertile middle ground for both employers, and individuals looking for lower costs, better benefits, and more attainable coverage. Voluntary group coverage combines positive elements of both the individual policies and group coverage to create a more positive overall experience for both parties.
Voluntary coverage helps lower costs. Marketing programs via payroll deduction to groups helps pool risks for insurers helping to lower claims rates and costs. Also, a payroll deduction means policies can be paid for using pre-tax deductions, which can lower the effective cost of the policies.
Voluntary policies make coverage more attainable and sustainable. Since coverage is paid for by the employees through payroll deduction, there is no direct cost to employers. Employers can expand benefit options to employees without adding to direct costs. Because these are group policies, some insurers will offer a guaranteed issue option that hinges upon participation rates within a group. This means that employees with existing or past medical problems may be able to get coverage. The policies are also portable, meaning that coverage can continue if an employee separates from the group.
Finally voluntary coverage means expanded benefit coverage. For example, a woman planning a pregnancy can find a lower cost, attainable policy that covers normal labor and delivery, plus complications by purchasing coverage through her employer. Since she pays the premium herself, it's easy for her employer to make paid maternity leave benefits available to her and her co-workers. Should she leave her employer, she can continue coverage as the policy is portable.
Ask your employer to make a voluntary short term disability insurance program available.
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