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Offering Group Disability Insurance

Group disability insurance is a single disability policy that covers many people (a group) who have a common interest or association, such as an employer, a trade, or a school affiliation. When your business offers a group disability plan to its employees, it must choose a specific range of coverage, a funding method for the plan, and the eligibility criteria for participants. The cost of group coverage is often less expensive than the cost of individual coverage, making it an attractive benefit for employees.

Group plans cover non-work-related injuries or illnesses

Unlike individual disability policies, most group policies sponsored by an employer only pay benefits if the injury or illness is not work-related (nonoccupational). Work-related injuries and illnesses are usually covered by workers' compensation insurance.

Three types of disability benefits

Three types of disability benefits are commonly offered to employees: sick leave, short-term disability, and long-term disability. Each plan covers a different period of disability, and you can usually buy disability insurance to fund the plans.

Sick leave

Company sick-leave plans cover the shortest period of disability, but they're not insurance. Under a sick-leave plan, the business usually:

  • Reimburses employees either wholly or partially for lost wages as a result of a sickness or accident that lasts for a short period of time (usually six months or less)
  • Provides full pay benefits for a specific number of days each year that do not have to be consecutive
  • Allows employees to either accrue sick days on a monthly basis or receive an allocation of a certain number of sick days each year
  • Funds the plan with company money--insurance is rarely involved
  • Has the option of allowing employees to carry unused sick days from one year to the following plan year
Short-term disability plans

Short-term disability insurance coverage bridges the gap between sick leave and long-term disability coverage. Most employers offer short-term disability insurance plans. If you choose to provide short-term disability insurance, you must also provide female employees with benefits during pregnancy and childbirth. Short-term disability plans generally:

  • Reimburse employees either wholly or partially for lost wages as a result of a sickness or accident that lasts for a short period of time (usually six months or less)
  • Define disability as the employee's inability to perform his or her regular duties
  • Contain short elimination periods (3 to 14 days) before benefit payments begin
Long-term disability plans

Disability insurance is the best way to provide long-term disability benefits. Long-term disability policies are offered more frequently by medium-size to large companies than by smaller businesses. Long-term disability plans do not have to follow nondiscrimination rules. As a result, your business can reduce the plan's overall costs by offering the plan to only a select group of employees.

Long-term disability insurance usually:

  • Provides benefits to employees who are disabled as a result of sickness or accident after they have been unable to work for a lengthy time period (usually three to six months)
  • Defines disability as the employee's inability to perform his or her regular duties and those of any other occupation
  • Pays benefits that are 50 to 70 percent of the employee's predisability pay
  • Pays benefits until the disabled employee reaches age 65, although some policies may pay lifetime benefits


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