When Life Insurance Isn’t Enough

Disability, not death, is much more likely to cause someone to lose their home.

If you only offer life insurance as an employee benefit, consider adding disability insurance if you want to provide more complete financial protection for employees and their families.

According to the Million Dollar Round Table, an association of financial professionals, nearly half of all foreclosures on conventional mortgages are caused by a disability, compared to only two percent resulting from the homeowner’s death. Disability insurance benefits provide income replacement if employees no longer can work due to a disability.

The Benefits of Life Insurance

Employers usually pay all or part of the monthly premium and for many employees, group life insurance is the only life insurance they have. The policy pays a death benefit to the employee’s beneficiaries if they die. Beneficiaries then can use the money to pay their expenses, including mortgage payments, medical bills, funeral costs, school tuition, personal loans, student loans and other debts. These benefits usually are tax-free.

Group life insurance often is easier for employees to qualify for than an individual policy. This is especially beneficial for employees who are older or in poor health because they don’t have to go through the underwriting process or a medical exam.

The downside of group life insurance is that it usually doesn’t provide the level of coverage most people need, and coverage expires after the employee leaves the company.

Depending on your plan’s design, your employees may be able to buy additional life insurance without answering health questions. Some plans also allow employees to purchase coverage for a spouse and/or dependent children. If they leave your employment, they may be able to maintain coverage if they continue to pay the premiums.

The Benefits of Disability Insurance

According to the Council for Disability Awareness, every seven seconds an illness, injury or accident keeps a U.S. citizen out of work for more than one month. For individuals out of work three or more months, the average time off because of a disability is more than two and a half years. Imagine having to go 136 weeks without a paycheck!

There are two types of disability plans — short-term and long-term. Both replace a portion of an employee’s salary —usually up to 60 percent — if the employee suffers from disabilities or illness, but the amounts and length of coverage differ.

Short-term disability insurance helps employees who do not have sufficient savings to cover 13 to 26 weeks of lost wages. Short-term disability also is used to fill the gap between the time someone becomes disabled and the time long-term benefits kick in. Long-term disability coverage pays a portion of the disabled employee’s income after he or she runs out of both sick leave and short-term disability benefits, typically after 90 to 180 days.

The cost of long-term disability insurance is determined by employee demographics and industry classification. The program can be structured so that the premiums are deducted as a business expense, but benefits can be received on an income tax-free basis.

For more information about implementing group life, group disability or both, contact your insurance broker to find the plans that meet your budget and your employees’ needs.