FOR BROKERS
Group Disability Insurance Marketing Guide
Building Disability Solutions
Every 7 seconds, a working-age American suffers a
disabling injury or illness.1
Group disability coverage helps build a dedicated workforce
by offering employees the protection they need.
1
The Disability Disconnect, The Council for Disability Awareness, America’s Disability Counter, DisabilityCounter.org
http://www.disabilitycanhappen.org/research/pdfs/CDA_Infographic.pdf, viewed 09/15.
Group Disability Insurance
At Principal Life Insurance Company, a member of the Principal Financial Group®, we recognize
our role in providing your clients with clear, consistent and manageable employee benefit
solutions – with a personal approach. Our comprehensive products allow you and your clients to
build group disability solutions that provide the protection employees need.
Our products offer:
Flexible and affordable disability solutions
Top-notch claim management and rehabilitation services
Time-saving eService options
Whether your clients want basic disability insurance, comprehensive coverage rich in added
benefits or voluntary options, we offer attractive and affordable disability solutions they will be
glad to include in their employee benefit package.
1
Table of contents
The need for disability solutions...................................................................................................... 3
Claim management and rehabilitation services............................................................................... 5
Short-Term Disability (STD) insurance............................................................................................. 7
“Or” definition of disability ......................................................................................................... 8
Benefits payable.......................................................................................................................... 9
Benefits when not working........................................................................................................ 11
Benefits when working.............................................................................................................. 11
Survivor benefit......................................................................................................................... 13
Benefit duration......................................................................................................................... 13
Rehabilitation services and benefits............................................................................................ 13
Limitations and exclusions of benefits........................................................................................ 14
Additional provisions................................................................................................................. 16
Suggested STD product designs................................................................................................ 17
Long-Term Disability (LTD) insurance........................................................................................... 18
“Or” definition of disability ....................................................................................................... 19
Benefits payable........................................................................................................................ 21
Benefits when not working........................................................................................................ 23
Benefits when working.............................................................................................................. 23
Benefit duration......................................................................................................................... 25
Rehabilitation services and benefits............................................................................................ 26
Optional rehabilitation benefits.................................................................................................. 27
Additional benefits..................................................................................................................... 28
Limitations and exclusions of benefits........................................................................................ 31
Additional provisions................................................................................................................. 33
Suggested LTD product designs................................................................................................ 34
Employee Choice sample design................................................................................................ 34
Benefits of integrated STD and LTD insurance............................................................................... 35
Claims payment calculations......................................................................................................... 36
2
The need for disability solutions
With so many employee benefits available, choosing the right ones can often be difficult. Disability
insurance is one of the most important, but often overlooked, employee benefits. While employers
view life and health insurance as essential employee benefits, they don’t always consider the risk that
one of their employees will become disabled. Unfortunately, disabilities can happen – and without
disability coverage, they can have devastating consequences.
Financial challenges facing employees
Disability insurance can provide financial stability for disabled employees and their
families during a difficult time. While some people have enough savings to withstand an
income loss for a short period of time, most do not have the funds necessary to cover a
long-term disability.
The cost of medical bills, daily living expenses and family emergencies can really add up
– especially for disabled workers without disability coverage.
DID YOU KNOW?
Over 1 in 4 of today’s 20-year-olds will become disabled before reaching
retirement.1
1 in 8 workers will be disabled for five years or more during their working
careers.2
About two-thirds (67%) of employees could pay for basic expenses for just
one year or less if they were no longer working, before tapping into their
retirement savings.3
– 3 months or less (29%)
– 4 to 6 months (22%)
– 7 months to 1 year (16%)
1
Social Security Fact Sheet, Social Security Administration, April 2014, http://www.ssa.gov/
news/press/factsheets/basicfact-alt.pdf, viewed 09/15.
2
Commissioner’s Disability Insurance Tables A and C, assuming equal weights by gender and
occupation class.
3
The Principal Financial Well Being IndexSM, 1st Quarter 2014.
3
Importance of a solid employee
benefits program
A solid employee benefits package is important to the livelihood of any business. Without
a competitive program, it’s almost impossible to attract and retain qualified employees.
Even in today’s changing job market, finding qualified employees can be challenging.
Offering a solid benefit package can give your clients an advantage in the job market and
help them attract the most qualified employees.
The benefits of disability insurance
Principal Life builds disability solutions with a variety of benefit designs to fit each of your
clients’ needs.
DISABILITY INSURANCE FROM PRINCIPAL LIFE
Provides an unbundled design, allowing your clients to create a package
that’s right for them
Helps employers provide a competitive benefit program, allowing them to
attract and retain quality employees
Includes a number of convenient and time-saving claim services: online
filings, a toll-free phone number and electronic funds transfers for LongTerm Disability (LTD) benefits
Uses an in-house staff of claim professionals capable of assisting employees
with services ranging from rehabilitation to return-to-work services
Allows employers and employees access to their disability benefits and other
coverages from Principal Life with our online tools, 24 hours a day, seven
days a week
Provides access to discounts and services to help employees maintain and
improve their health and well-being
4
Claim management and rehabilitation
services
In-house management staff
At Principal Life, we strive to provide quality claim management and rehabilitation
services. For more than 30 years, our staff of claim professionals has provided claimants
with expert assistance and personalized service.
In-house registered nurses and an occupational associate assist claimants with
rehabilitation and encourage return to work, plus our triage approach allows staff to
identify the options available for each claimant. Principal Life provides a complete
disability management program through coordination of treatment between our
disability case managers and registered nurses.
Social Security specialists identify claimants who may qualify for Social Security Disability
Insurance (SSDI) benefits and offer support through the application process. Our Social
Security Advocacy Services offer assistance to claimants who file for SSDI benefits.
OUR OCCUPATIONAL ASSOCIATE:
Coordinates the return-to-work program
Assists with job development and placement
Collaborates with state vocational rehabilitation resources and job
placement services
After a claim is submitted, a claim specialist
connects with the employer, employee and
physician. Additional professionals may be
called upon as needed.
5
Our claim services
We want to provide your clients with the best disability insurance for their money. A
key to our company’s success is providing excellent customer service and support. We
strive to pay claims promptly and accurately. In fact, our consistent attention to detail
and convenient customer services have built a strong reputation for Principal Life as an
industry leader in claim service.
We offer a variety of claim services and encourage customers to contact us with any questions
or updates regarding their claim information. From a single claim form to a personal
representative for each claim, we provide quality claim services your clients will appreciate.
Online Claim Capabilities – Customers can quickly and easily submit claims, view claim
status and access their Explanation of Benefits 24 hours a day, seven days a week by
logging in to www.principal.com.
Single Claim Form for STD & LTD – Disabled employees are only required to complete
one claim form for STD, LTD and waiver of premium benefits on their life insurance. We
also offer a toll-free fax service.
Electronic Fund Transfer for LTD – We can deposit monthly disability coverage payments
into a claimant’s bank account, providing a quick, efficient and easy way to receive
disability benefits.
Toll-free Number – We provide a toll-free number to our claims department, giving our
customers convenient access to the claim professionals handling their cases.
Rehabilitation Services – By focusing on early intervention and case management, our
Rehabilitation Services program helps disabled employees return to work earlier.
OUR STAFF ALSO:
Coordinates, assists and answers questions regarding the SSDI claim
filing process
Offers a toll-free number for claimants with SSDI questions or concerns
Researches medical and vocational evidence to support SSDI claims
6
SHORT-TERM
DISABILITY
Short-Term Disability product features
Short-Term Disability (STD) coverage replaces a portion of income for employees who are unable
to work or have reduced income due to an illness or injury. We offer an STD product in traditional
employer-paid and voluntary versions. Both versions cover nonwork-related disabilities, with
24-hour coverage also available. Self-funded STD is available to employers having 50 or more
eligible employees.* Additional options may be available upon request. All benefits are subject to
underwriting approval, and state-required variations are not shown.
This summary provides information on our standard product and many optional product features.
Eligibility
To be eligible for STD coverage, employees must be:
•Actively at work on a full-time basis for at least 30 hours per week
• Residing in the United States
•U.S. citizens or legally working in the United States
Part-time, seasonal, temporary or contract employees are not eligible. In certain situations, eligibility
hours of less than 30 hours per week may be available.
*Employers with fewer than 1,000 employees must purchase at least one insured product. Standalone,
self-funded options are available to employers having 1,000 or more employees.
7
SHORT-TERM
DISABILITY
PREMIUM CONTRIBUTIONS
STD is available on a noncontributory, contributory, bonus-up or voluntary basis. With
noncontributory coverage, the employer pays 100% of the premium. With contributory coverage,
the employer and employee share the cost of coverage. With bonus-up, employees pay 100% of
the premium, with the employer increasing their gross taxable income to cover the premium cost.
With voluntary STD coverage, employees pay 100% of the premium.
EMPLOYEE PARTICIPATION
When noncontributory coverage is elected, all eligible employees must participate. For
contributory coverage, our standard employee participation is 75%. For bonus-up, it is 100%.
When voluntary STD coverage is elected, the minimum participation requirement is the greater of
20% of eligible employees or 5 insured lives.
RATE GUARANTEE PERIOD
A one-year rate guarantee is offered for new coverage.
A rate guarantee period of two or three years is also available upon request. With longer rate
guarantees, if the total covered weekly earnings increase or decrease by more than 25%, rate
adjustments will be made at the policy anniversary.
“Or” definition of disability with “Own Job”
Our standard STD contract includes a residual “or” definition of disability. We do not require an
employee to be totally disabled to qualify for benefits. Under our residual definition of disability,
employees qualify as disabled during the elimination period and the benefit payment period if
because of sickness, injury or pregnancy, one of the following applies:
•They cannot perform the majority of the substantial and material duties of their own job; or
•They are performing the duties of their own job on a modified basis or performing any other job,
and are unable to earn more than 80% of indexed pre-disability earnings.
Principal Life also provides an “Own Job” definition in its STD contracts. Why is this beneficial?
Typically, STD coverage is purchased as a replacement for or supplement to sick leave or as a salary
continuance benefit with the expectation that the employee will return to his or her original job.
Therefore, the evaluation of disability should look at the job the employee is performing on the date
of disability, not the occupation.
We also offer partial and total definitions of disability.
8
SHORT-TERM
DISABILITY
ELIMINATION PERIOD
Benefits begin after employees are disabled for a specified number of days. Under the residual
definition of disability, the elimination period may be satisfied with days of total or partial disability.
Benefits due to injury can begin as early as the first day of disability and benefits due to illness can
begin as early as the eighth day of disability.
Traditional STD – Elimination period options range from 1 to 30 days. A first-day hospital benefit,
which provides benefits on the first day of hospitalization even if the elimination period is longer, is
available on contracts with elimination periods of 1 to 15 days.
OWN JOB
Own job refers to the job the employee is routinely performing for the policyholder when his or her
disability begins.
SUBSTANTIAL AND MATERIAL DUTIES
Substantial and material duties are defined as the essential tasks generally required by employers
from those engaged in a particular job that cannot be modified or omitted.
MODIFIED BASIS
Employees are considered to be working on a modified basis if they are:
• Working on a part-time basis; or
•Able to perform some, but not all, of the substantial and material duties of a job on a full-time basis.
Benefits payable
After an employee has qualified as disabled and satisfied the elimination period, STD benefits are paid
for the duration of the claim based on contract provisions. We offer the following benefit options:
Benefit Percentage – We offer standard benefit percents of 40%, 50%, 60% or 662⁄3% of a disabled
employee’s pre-disability earnings; 70% is also available for traditional STD.
Maximum Weekly Benefit –
Traditional STD – Up to $2,500
Voluntary STD – Up to $1,500
Minimum Weekly Benefit –
Traditional and voluntary – $15
9
SHORT-TERM
DISABILITY
DEFINITION OF EARNINGS
An employee’s pre-disability earnings can be defined in a variety of ways, including base wage
and W-2 earnings definitions. Our STD contract also includes an owner’s definition
of earnings.
Customized definitions are also available for teachers/schools.
BASE WAGE
Our standard weekly earnings definition is
An employee’s base wage does not include:
based on an employee’s base wage, which
•Commissions
includes:
•Bonuses
•Earnings under a qualified
• Overtime pay
deferred compensation plan
•Tips
•Voluntary earnings reduction under a Section
•Differential pay
125 plan
•Housing or car allowances
• Health Savings Account
• Stock options
Commission and bonus can be included with base wage upon request.
W-2
An employee’s weekly earnings may also be based on their W-2 earnings for the previous two or
three calendar years. Our standard W-2, two-year average means employees’ weekly earnings are
based on the weekly average of W-2 earnings for the two previous calendar years, which includes:
•Earnings under a qualified deferred compensation plan
•Voluntary earnings reduction under a Section 125 plan
• Health Savings Account
OWNER’S DEFINITION OF EARNINGS
Our standard contract includes a definition for owner’s pre-disability earnings. An owner’s
weekly earnings are based on a prior two-calendar-year average of the owner’s share of business
income, in addition to any:
• Salary, benefits or other compensation payable to the owner; and
•Any contributions to a pension or profit sharing plan made on the owner’s behalf.
An owner’s earnings are reduced by the owner’s share of the customary unreimbursed business
expenses that:
•Are incurred on a regular basis
•Are essential to the established business operation
•Are deductible for federal income-tax purposes
•Do not exceed the expenses prior to disability
10
SHORT-TERM
DISABILITY
OWNER’S DEFINITION OF EARNINGS (CONT’D.)
An owner’s weekly earnings do not include any type of unearned income such as:
•Dividends
•Retirement
•Rent
•Pension plan
•Interest
•Income from royalties
•Capital gains
•Disability benefits
•Income received from any
form of deferred compensation
Disability benefits when not working
For employees not working during the benefit payment period, the weekly benefit equals an
employee’s primary weekly benefit less income from other sources.
Disability benefits when working
Our standard residual STD product includes a work incentive benefit when the STD is integrated
with LTD. With the work incentive benefit, the weekly benefit for employees working during the
benefit payment period is the lesser of:
•100% of pre-disability earnings, less income from other sources, less the income an employee
receives from working while disabled; or
• Their primary weekly benefit, less income from other sources.
The primary weekly benefit equals the benefit percentage multiplied by the employee’s predisability earnings but will not exceed the maximum weekly benefit.
When the work incentive benefit is not included, partial benefits are paid in proportion to the
employee’s income loss. Without the work incentive benefit, the weekly benefit for employees
working during the benefit payment period is the lesser of:
•Their primary weekly benefit, less income from other sources, multiplied by the employees’
income loss percentage; or
•100% of pre-disability earnings, less income from other sources, less the income an employee
receives from working while disabled.
An alternative method for calculating partial benefits is also available. Under this method, the primary
weekly benefit is reduced by income from other sources and by 50% of the income an employee receives
from working while disabled..
11
SHORT-TERM
DISABILITY
Principal Life’s standard contract coordinates benefits with income employees receive from other
sources. Offsets are applied to the benefits-payable calculation using a direct dollar-for-dollar formula.
INCOME FROM OTHER SOURCES
We coordinate disability benefits with income disabled employees receive from other sources
including:
•All retirement or disability benefits that
•Income from other group disability coverage
employees and their dependents receive or
policies
could have received from Social Security or
•Disability or retirement benefits paid by
other governmental agencies
pension plans sponsored by the policyholder
•Salary continuance, personal time-off or
•Income received from no-fault auto laws
sick pay
•Renewal commissions received from the
•Workers’ compensation benefits
policyholder
•Income from state disability plans
•Payments from policies that provide coverage
•Severance pay
•All payments received under state
for time away from work, if paid in part by or
unemployment laws
deducted from payroll by the policyholder
The following income sources do not reduce the STD benefit:
•Individual disability insurance
•Individual retirement accounts (IRAs)
•Profit sharing plans
•Stock ownership plans
•Thrift savings plans
•Keogh (HR-10) plans
•Nonqualified deferred compensation plans
•Social Security retirement or pension
retirement payments received prior to
•401(k) plans
disability
12
SHORT-TERM
DISABILITY
Survivor benefit
A survivor benefit is paid to the survivor of an employee who dies while receiving disability benefits.
A benefit of three times the primary weekly benefit paid in one lump sum is available.
Benefit duration
The benefit duration is the period of time STD benefits can be paid. The most common benefit
durations are 13 or 26 weeks. Additional options are available. The STD benefit duration can be
customized to integrate with LTD coverage.
An employee’s disability benefit will also end when the employee:
•Recovers
•Ceases to be under the regular and appropriate care of a physician
•Fails to provide any required proof of disability
•Fails to submit to a required medical examination
•Fails to report income from other sources or any other required earnings information
•Fails to pursue Social Security Disability Insurance (SSDI) benefits or workers’ compensation benefits
•Dies
Rehabilitation services and benefits
Disabled employees may qualify for participation in a rehabilitation program. Our rehabilitation
staff of registered nurses, certified rehabilitation counselors and vocational rehabilitation specialists
works with disabled employees, their physicians and your clients to create individualized
rehabilitation plans. These plans encourage and assist employees in returning to work.
When rehabilitation assistance is approved in advance as part of a rehabilitation plan, we may pay a
portion of reasonable expenses. Rehabilitation assistance may include:
•Coordination of medical services
•Business or financial planning
•Vocational and employment assessment
•Retraining for a new occupation
•Adaptive equipment purchases
•Education expenses
13
SHORT-TERM
DISABILITY
For voluntary STD, disabled employees who could benefit from an individualized rehabilitation plan
will be required to participate in a plan. If employees do not comply with the rehabilitation plan
without good cause, their disability benefits may cease. (This provision is included for voluntary STD
only when STD is integrated with LTD coverage.) This provision is available but not required for
traditional STD coverage.
Preventive rehabilitation services may be offered to employees who have not yet become disabled
but have a condition that could prevent them from performing the substantial and material duties of
their occupation.
We offer the following rehabilitation benefits:
REHABILITATION INCENTIVE BENEFIT
This benefit provides financial incentive for totally disabled employees who participate
in an individualized rehabilitation plan. When totally disabled employees participate
and satisfy the requirements of the plan, their benefit percentage will increase by 5%.*
REASONABLE ACCOMMODATION BENEFIT
This benefit helps cover the cost of modifying the worksite to allow disabled
employees to return to work. With approval, we reimburse up to $500 for actual
expenses incurred to modify the worksite to help a disabled employee return to work.
Though usually paid to the employer, if appropriate, it may be paid to the employee.*
*These options are normally included only for STD cases that are integrated with LTD.
Limitations and exclusions of benefits
Certain limitations and exclusions are included in our contract. Benefits will not be paid to
employees with disabilities resulting from:
•Willful self-injury or self-destruction, while sane or insane
•War or act of war
•Voluntary participation in an assault, felony, criminal activity, insurrection or riot
• Cosmetic surgery or other elective procedures that are not medically necessary
•A new or continuing disability that begins after an employee’s benefit payment period has
ended, but the employee has not returned to active work
14
SHORT-TERM
DISABILITY
MATERNITY OPTIONS
STD offers three options related to maternity coverage, as follows:
•Full maternity coverage – Pregnancy- and childbirth-related disabilities are treated the same as
any other disability. This is our standard coverage with options.
•Full maternity coverage after 12 months – With this option, benefits are paid for disabilities
resulting from pregnancy or childbirth if the disability begins after coverage has been in force for
12 consecutive months. For maternity-related disabilities that begin during the first 12 months of
coverage, benefits are payable only if the disability results from complications of pregnancy.
•Complications only – With this option, benefits are paid for disabilities resulting from pregnancy
or childbirth only if the disability results from complications of pregnancy.
PRE-EXISTING CONDITIONS LIMITATION
A pre-existing conditions limitation is not included with traditional STD.
Voluntary STD includes a pre-existing conditions limitation. A condition is considered
pre-existing if an employee in the three months prior to his or her effective date under
the policy:
• Received medical treatment, consultation, care or service; or
• Was prescribed or took prescription medications.
Benefits will be payable during the pre-existing investigation for up to six weeks following the date
of disability.
In the event an investigation is necessary to determine if a disability is pre-existing, benefits may
be payable for up to six weeks while Principal Life conducts its pre-existing condition investigation.
Once the investigation is complete and if the disability is deemed to be a pre-existing condition, no
further benefits will be payable. Benefits will not be paid beyond the date six weeks following the
date of disability for disabilities resulting from pre-existing conditions unless, when the employee
becomes disabled, he or she has been actively at work for one full day after being covered under
the policy for 12 consecutive months. No benefits will be paid for a subsequent claim subject to a
pre-existing condition investigation for the same condition.
Options for pre-existing conditions including 3/6/12, 6/12, 6/24, 12/12, 3/3/12, 6/12/24, and 24/24
are also available.
15
SHORT-TERM
DISABILITY
REPLACEMENT OF A PRIOR PROGRAM
This provision is included if we replace another STD policy. If employees are not actively at work
on the day coverage would become effective, or if employees are disabled due to a pre-existing
condition, they may still qualify for benefits if:
• They had STD coverage under a prior program.
•They are not receiving any benefits under the prior program, but would have been entitled to
these benefits if the prior program remained in force.
•No provision other than actively at work or the pre-existing conditions provision would
otherwise prohibit benefits from being paid under our policy.
Any benefit payable is the lesser of the benefits under our policy or the benefits that would have
been paid under the prior program, had it remained in force.
ADDITIONAL PROVISIONS
In addition to our standard product, we also offer several optional provisions that provide more
options when designing your clients’ disability insurance programs.
Disabled employees who could benefit from an individualized
Mandatory Rehabilitation
rehabilitation plan will be required to participate in a plan. If
employees do not comply with the rehabilitation plan without good
cause, their disability benefits may cease.
This provision requires disabled employees work to their full medical
Full Capacity
and vocational capacity. If they choose not to, benefits will be paid
as if they were working to their full capacity.
40-Hour Work Week
National Economy
Under this provision, employees who are working (or have the ability
to work) 40 hours per week are not considered disabled.
Under this provision, an employee’s occupation will be evaluated as
it is performed in the national economy.
16
SHORT-TERM
DISABILITY
Suggested STD product designs
Benefits are offered on a noncontributory, contributory or voluntary basis. Additional benefit
options may be available upon request. All benefits are subject to underwriting approval and
state specifications.
PRODUCT FEATURES
STANDARD BENEFITS
Minimum Benefit
$15
Maximum Benefit
$1,500
Benefit Percentage
60%
Elimination Period
Benefits payable on the 8th day for accident and sickness
Maximum Benefit Period
26 weeks
Definition of Disability
“Or” definition
Work Incentive Benefit
ork incentive benefit included when STD is integrated with LTD;
W
otherwise, partial benefits are paid. See page 11 for details.
Reasonable
Accommodation Benefit
$500 when integrated with LTD
Rehabilitation Incentive
Benefit
Applies when integrated with LTD
17
LONG-TERM
DISABILITY
Long-Term Disability product features
Long-Term Disability (LTD) provides monthly income to employees who are unable to work or have
reduced income due to an illness or injury. Our LTD contract provides 24-hour disability coverage for
both work-related and non work-related disabilities.
Employee Choice LTD is available to employers that want to offer their employees a choice of
benefits while keeping the selection process simple. With Employee Choice, employers work with
brokers to create two different LTD designs. Three recommended provisions – benefit percentage,
benefit duration and elimination period – have the greatest impact on the total cost of coverage.
Greater customization can be created by selecting additional provisions for the two designs. Then
during enrollment, coverage options and costs are shown so employees can select the coverage that
best fits their budget and meets their needs.
Additional options may be available upon request. All benefits are subject to underwriting approval
and state-required variations are not shown.
This summary provides information on our standard product and many optional product features.
Eligibility
To be eligible for LTD coverage, employees must be:
• Actively at work on a full-time basis for at least 30 hours per week
• Residing in the United States
• U.S. citizens or legally working in the United States
Part-time, seasonal, temporary or contract employees are not eligible. In certain situations, eligibility of
less than 30 hours per week may be available.
18
LONG-TERM
DISABILITY
PREMIUM CONTRIBUTIONS
LTD is available on a noncontributory, contributory, bonus-up or voluntary basis. With
noncontributory coverage, the employer pays 100% of the premium. With contributory coverage,
the employer and employee share the cost of coverage. With bonus-up, employees pay 100% of
the premium, with the employer increasing their gross taxable income to cover the premium cost.
With voluntary LTD coverage, employees pay 100% of the premium.
EMPLOYEE PARTICIPATION
When noncontributory coverage is elected, all eligible employees must participate. For
contributory coverage, our standard employee participation is 75%. For bonus-up, it is 100%.
When voluntary LTD coverage is elected, the minimum participation requirement is the greater of
20% of eligible employees or 5 insured lives.
RATE GUARANTEE PERIOD
A two-year rate guarantee is offered for new coverage. A rate guarantee period of one or three years is also available upon request. With longer rate
guarantees, if the total covered monthly earnings increase or decrease by more than 25%, rate
adjustments will be made at the policy anniversary.
“Or” definition of disability
Our standard LTD contract includes a residual “or” definition of disability. We do not require an
employee to be totally disabled to qualify for benefits. Under our residual definition of disability,
employees qualify as disabled during the elimination period and own occupation period if, because of
sickness, injury or pregnancy, one of the following applies:
•They cannot perform the majority of the substantial and material duties of their own occupation;
or
•They are performing the duties of their own occupation on a modified basis or performing any other
occupation, and are unable to earn more than 80% of predisablity earnings.
After completing the own occupation period, employees qualify as disabled if, because of sickness,
injury or pregnancy, one of the following applies:
•They cannot perform the majority of the substantial and material duties of any occupation for
which they are or may become qualified based on their education, training or experience; or
•They are performing the substantial and material duties of their own occupation or any other
occupation on a modified basis, and are unable to earn more than 80% of pre-disability
earnings.
If voluntary LTD, the inability to earn 80% of income required during the any occupation period
will change to one minus the benefit percentage.
We also offer partial, total and total with Social Security approval definitions of disability.
19
LONG-TERM
DISABILITY
ELIMINATION PERIOD
Benefits begin after employees are disabled for a specified number of months or days. Standard
elimination period options are 90 or 180 days. When the residual definition of disability is elected,
the elimination period may be satisfied with days of total or partial disability.
The temporary recovery provision allows employees to recover during the elimination period
and again become disabled without being required to complete a new elimination period. An
employee has a period twice as long as the elimination period to satisfy the required number of
days of disability.
Traditional LTD – Elimination period options range from 2 to 12 months or 60 to
365 days.
Voluntary LTD – Elimination period options range from 3 to 12 months, or 90 to 365 days.
OWN OCCUPATION PERIOD
Own occupation is the occupation the employee is routinely performing when disability begins.
Own occupation does not mean the specific tasks or job the employee is performing for the
policyholder or at a specific location.
Our standard own occupation period is the first two years of the benefit payment period.
Traditional LTD – Additional options include 1 year, 3 year, 5 year or end of benefit duration. LTD
can also be written without an own occupation period.
Voluntary LTD – Additional voluntary LTD options include 1 year or 3 years. Voluntary LTD can also
be written without an own occupation period.
SUBSTANTIAL AND MATERIAL DUTIES
Substantial and material duties are defined as the essential tasks generally required by employers
from those engaged in a particular occupation that cannot be modified or omitted.
MODIFIED BASIS
Employees are considered to be working on a modified basis if they are:
•Working on a part-time basis; or
•Able to perform some, but not all, of the substantial and material duties of an occupation on a
full-time basis.
20
LONG-TERM
DISABILITY
Benefits payable
After an employee has qualified as disabled and satisfied the elimination period, LTD
benefits are paid for the duration of the claim based on contract provisions. We offer the
following benefit options:
Benefit Percentage – We offer standard benefit percents of 40%, 50% or 60% of a
disabled employee’s pre-disability earnings; 662⁄3% of earnings are also available for
traditional LTD.
Maximum Monthly Benefit –
Traditional LTD – Up to $15,000
Voluntary LTD – Up to $10,000
Minimum Monthly Benefit –
We offer minimum monthly benefit options of:
•$100, or
•$50, or
•The greater of 10% of the primary monthly benefit or $100.
DEFINITION OF EARNINGS
An employee’s pre-disability earnings can be defined in a variety of ways, including base wage and
W-2 earnings definitions. Our LTD contract also includes an owner’s definition of earnings.
A contract salary definition of earnings is also available upon request.
BASE WAGE
An employee’s base wage does not include:
Our standard monthly earnings definition is
based on an employee’s base wage, which
•Commissions
includes:
•Bonuses
•Earnings under a qualified deferred
•Overtime pay
compensation plan
•Tips
•Voluntary earnings reduction under a
•Differential pay
Section 125 plan
•Housing or car allowances
• Health Savings Account
• Stock options
Commission and bonus can be included with base wage upon request.
21
LONG-TERM
DISABILITY
W-2
An employee’s monthly earnings may also be based on W-2 earnings for the previous
two or three calendar years. Our standard W-2, two-year average means employees’ monthly
earnings are based on the monthly average of W-2 earnings for the two previous calendar years,
which includes:
•Earnings under a qualified deferred compensation plan
•Voluntary earnings reduction under a Section 125 plan
• Health Savings Account
OWNER’S DEFINITION OF EARNINGS
Our standard contract includes a definition for owner’s pre-disability earnings. An owner’s monthly
earnings are based on a prior two-calendar-year average of the owner’s share of business income,
in addition to any:
•Salary, benefits or other compensation payable to the owner; and
•Any contributions to a pension or profit sharing plan made on the owner’s behalf.
An owner’s earnings are reduced by the owner’s share of the customary unreimbursed business
expenses that:
•Are incurred on a regular basis
•Are essential to the established business operation
•Are deductible for federal income-tax purposes
•Do not exceed the expenses prior to disability
An owner’s monthly earnings do not include any type of unearned income, such as:
•Dividends
•Rent
•Interest
•Capital gains
•Income received from any form of deferred compensation
•Retirement
•Pension plan
•Income from royalties
•Disability benefits
22
LONG-TERM
DISABILITY
Disability benefits when not working
For employees not working during the benefit payment period, the monthly benefit equals an
employee’s primary monthly benefit less income from other sources.
Offsets are applied to the benefit payable calculation using a direct dollar-for-dollar formula. For
traditional LTD, a 70% all-source formula may also be used upon request.
Disability benefits when working
Our standard residual LTD product includes a work incentive benefit. Disabled employees can
receive up to 100% of pre-disability earnings for 12 months if they return to work part time.
Additional work incentive benefit options include 3, 6, or 24 months.
For an employee working during the benefit payment period, the monthly benefit payable for the
work incentive period is the lesser of:
•100% of indexed pre-disability earnings, less income from other sources, less the income an
employee receives from working while disabled; or
•The employee’s primary monthly benefit, less income from other sources.
The primary monthly benefit equals the benefit percentage multiplied by the employee’s predisability earnings but will not exceed the maximum monthly benefit.
After completing the work incentive period, partial benefits are paid in proportion to the
employee’s income loss. The monthly benefit for an employee working during the benefit
payment period is the lesser of:
•His or her primary monthly benefit, less income from other sources, multiplied by the
employee’s income loss percentage; or
•100% of indexed pre-disability earnings, less income from other sources, less the income an
employee receives from working while disabled.
An alternative method for calculating partial benefits is also available. Under this method, the primary
monthly benefit is reduced by income from other sources and by 50% of the income an employee
receives from working while disabled.
23
LONG-TERM
DISABILITY
INDEXING OF PRE-DISABILITY EARNINGS
On March 1 of every year, employees’ pre-disability earnings are adjusted according to
the average rate of increase in the Consumer Price Index (CPI) for the previous year, up to a
maximum of 10% annually.
INCOME FROM OTHER SOURCES
We coordinate disability benefits with income disabled employees receive from other sources
including:
•All retirement or disability benefits that employees and their dependents receive or could have
received from Social Security or other governmental agencies
•Salary continuance, personal time-off or sick pay
•Workers’ compensation benefits
•Income from state disability plans
•Payments from policies that provide coverage for time away from work, if paid in part by or
deducted from payroll by the policyholder
•Income from other group disability policies
•Disability or retirement benefits paid by pension plans sponsored by the policyholder
•Income received from no-fault auto laws
•Renewal commissions received from the policyholder
•Severance pay
• All payments received under state unemployment laws
The following income sources do not reduce the LTD benefit:
•Individual disability insurance
•Profit sharing plans
•Thrift savings plans
•Nonqualified deferred compensation plans
•401(k) plans
•Individual retirement accounts (IRAs)
•Stock ownership plans
•Keogh (HR-10) plans
•Social Security retirement or pension retirement payments received prior to disability
For traditional or voluntary LTD, we offer a contract that can be changed to offset with benefits from any
individual disability policy or only from an employee-paid individual disability policy.
24
LONG-TERM
DISABILITY
Benefit duration
Under our standard LTD policy, the benefit duration is to age 65 (Reducing Benefit Duration). For
employees who become disabled before age 62, disability benefits are paid until the later of the date:
•They reach age 65; or
•42 months after the benefit payment period begins.
For employees who become disabled at or after age 62, disability benefits are payable until the date
the benefit payment period reaches the number of months shown below.
AGE AT ONSET OF DISABILITY
MAXIMUM BENEFIT PAYMENT PERIOD
62
42 months
63
36 months
64
30 months
65
24 months
66
21 months
67
18 months
68
15 months
69 or over
12 months
Under the recurring disability provision, disabled employees who recover and return to work for six
months or less during the benefit duration are not required to complete a new elimination period if
they become disabled again due to the same or related cause while insured under our policy.
An employee’s disability benefit will also end when the employee:
•Recovers
•Ceases to be under the regular and appropriate care of a physician
•Fails to provide any required proof of disability
•Fails to submit to a required medical examination
•Fails to report income from other sources or any other required earnings information
•Fails to pursue Social Security Disability Insurance (SSDI) benefits or workers’ compensation benefits
•Dies
Benefit duration options including 2-year, 5-year, 65/5/70, and Social Security Normal Retirement Age
(SSNRA) are also available.
25
LONG-TERM
DISABILITY
Rehabilitation services and benefits
Disabled employees may qualify for participation in a rehabilitation program. Our rehabilitation staff
of registered nurses, certified rehabilitation counselors and vocational rehabilitation specialists works
with disabled employees, their physicians and your clients to create individualized rehabilitation
plans. These plans encourage and assist employees in returning to work.
When rehabilitation assistance is approved in advance as part of a rehabilitation plan, we may pay a
portion of reasonable expenses. Rehabilitation assistance may include:
• Coordination of medical services
•Vocational and employment assessment
•Adaptive equipment purchases
•Business or financial planning
•Retraining for a new occupation
•Education expenses
For voluntary LTD, disabled employees who could benefit from an individualized rehabilitation plan
will be required to participate in a plan. If employees do not comply with the rehabilitation plan
without good cause, their disability benefits may cease. This provision is available but not required
for traditional LTD coverage.
Preventive rehabilitation services may be offered to employees who have not yet become disabled
but have a condition that could prevent them from performing the substantial and material duties
of their occupation.
REHABILITATION INCENTIVE BENEFIT
This benefit provides financial incentive for totally disabled employees who participate in an
individualized rehabilitation plan. When totally disabled employees participate and satisfy the
requirements of the plan, their benefit percentage will increase by 5%. Employees are eligible for
12 months of rehabilitation incentive benefits.
This provision may be removed upon request.
26
LONG-TERM
DISABILITY
Optional rehabilitation benefits
REASONABLE ACCOMMODATION BENEFIT
This benefit helps cover the cost of modifying the worksite to allow disabled employees to return
to work. With approval, we reimburse up to $2,000 for actual expenses incurred to modify the
worksite to help a disabled employee return to work. Though usually paid to the employer, if
appropriate, it may be paid to the employee.
A $5,000 option is also available upon request or this provision may be removed.
RETURN TO WORK CHILDCARE BENEFIT
This benefit provides a financial incentive for partially disabled employees to remain on the job
or return to work by helping them cover the cost of childcare for their dependent children. We
reimburse employees for a percentage of their childcare expenses for up to 12 months.
We offer return-to-work childcare benefits from $100 to $800 per month. We reimburse 50% or 100%
of childcare expenses.
SPOUSE REHABILITATION BENEFIT
This benefit provides rehabilitation assistance to the qualifying spouse of a permanently disabled
employee. We will provide a one-time spouse rehabilitation benefit. It can be used to pay for a
spouse’s education expenses, job placement expenses, family care expenses or family moving
expenses.
Options include a one-time benefit of $500 or $1,000.
27
LONG-TERM
DISABILITY
Additional benefits
We also offer a variety of added benefits, designed to enhance any disability package. The following
options are available.
SURVIVOR BENEFIT
This benefit is paid to the survivors of employees who die while receiving disability benefits. Our
standard benefit is equal to three times the monthly benefit payable.
Our standard contract also offers an accelerated survivor benefit option. With this benefit,
employees who are diagnosed with a terminal illness and have a life expectancy of 12 months or
less may elect to receive their survivor benefit on an accelerated basis.
A disabled employee’s receipt of the accelerated survivor benefit may have tax consequences and
could affect eligibility for public assistance programs.
Additional options include three and six times the primary monthly benefit or six times the benefits payable.
ACTIVITIES OF DAILY LIVING (ADL) BENEFIT
This benefit provides an additional benefit to employees who suffer from catastrophic disabilities.
The employer chooses the desired income replacement level, up to 100% of pre-disability
earnings. The ADL benefit is determined by subtracting the elected benefit percentage from the
ADL income replacement percentage.
For example, if the benefit percentage is 60%, the ADL benefit is 40% when 100% income
replacement is selected.
Employees who are unable to perform two or more of the activities of daily living qualify for
ADL benefits.
Activities of daily living include:
•Bathing
•Toileting
•Dressing
•Transferring
•Eating or feeding
•Continence
Employees must have:
•A loss of the ability to perform two or more of the activities of daily living without the assistance
or verbal cueing of another individual; or
•A deterioration or loss of intellectual capacity and need for another person’s assistance or verbal
cueing for their protection or the protection of others.
An additional benefit of up to $5,000 per month may be payable under the ADL provision.
Options include 80%, 90% or 100% income replacement.
28
LONG-TERM
DISABILITY
COST OF LIVING ADJUSTMENT (COLA)
COLA is available with traditional LTD. The optional COLA benefit protects disabled employees
from inflation by increasing benefit payments on the anniversary of the date benefit payments
began. Benefits are increased for a specified period of time.
COLA options include 1% to 4%, CPI up to 10%, or 50% of CPI up to 6%. Cost of living adjustments can
be applied for 5 years, 10 years or until the end of the benefit duration.
RETIREMENT PLAN SUPPLEMENT BENEFIT
This benefit pays additional dollars into a retirement plan for a disabled employee, and is paid in
addition to normal disability benefits.
If the benefit is elected, funds are deposited into a Flexible Premium Deferred Annuity or similar
contract issued by Principal Life. Employees have full ownership rights to the annuity.
To be eligible for the benefit, employees must be employed for 12 months before becoming
disabled and receive disability benefit payments for 12 months.
Due to the taxability of this benefit, Principal Life can pay an amount equal to 10% or 20% of the
retirement plan supplement benefit received during the calendar year. This additional benefit helps
employees pay any taxes that may be due on the retirement plan supplement benefit.
Options for this benefit range from 1% to 10% of the employee’s covered monthly earnings.
A 401(k) retirement plan supplement benefit option is also available if an employer’s 401(k) plan is
legally able to accept contributions from a disability policy. Under the 401(k) option,
the retirement plan supplement benefit is paid into an employee’s existing 401(k) plan.
ACCIDENTAL DISABILITY BENEFIT
This benefit ensures that a minimum number of monthly disability payments are paid to employees
who become disabled as a result of an accidental injury resulting in the loss of:
•Sight in both eyes – 48 months
•Both hands – 48 months
•Both feet – 48 months
•One hand and one foot – 48 months
•One hand and sight of one eye – 48 months
•One foot and sight of one eye – 48 months
•One hand or one foot – 24 months
•Sight in one eye – 12 months
•Thumb and index finger of either hand – 12 months
29
LONG-TERM
DISABILITY
CONVERSION PRIVILEGE
We offer a conversion privilege to employees who wish to retain LTD coverage but are no longer
employed due to:
•Resignation
•Termination for cause
•Lay-off
• Leave of absence
With this privilege, employees who have had LTD coverage for 12 consecutive months may
convert their benefits to personal LTD insurance without proof of good health.
DEPENDENT EDUCATION BENEFIT
This provision is designed to assist disabled employees with education expenses of eligible
dependent children who attend a post-secondary school on a full-time basis. Employees must
receive disability benefits for six consecutive months before being eligible for this benefit. The
maximum benefit payable is $10,000 for all eligible dependents.
Monthly payment options from $100 to $250 per dependent child are available.
MEDICAL PREMIUM SUPPLEMENT BENEFIT
Available as an optional benefit with employer-paid or voluntary long-term disability insurance,
the medical premium supplement pays an additional benefit to defray the cost of an employee’s
monthly healthcare premium through COBRA. The benefit is paid separately from the employee’s
disability benefit, and may be applied to individual or family premiums. For employees who are
approved for Social Security Disability Insurance (SSDI), the supplement helps bridge the gap
to Medicare.
Employees are eligible for the medical premium supplement when they:
• Qualify as disabled
• Are disabled for at least six months
• Are eligible for and elect to continue medical coverage under COBRA*
*May also be available under a state continuation law.
30
LONG-TERM
DISABILITY
Limitations and exclusions of benefits
Certain limitations and exclusions are included in the contract. Benefits will not be paid
to employees with disabilities resulting from:
•Willful self injury or self destruction, while sane or insane
• War or act of war
•Voluntary participation in an assault, felony, criminal activity, insurrection or riot
•A new or continuing disability that begins after an employee’s benefit payment period has ended,
but the employee has not returned to active work.
An optional limitation is also available that limits benefit payments to 12 months for each period of
continuous disability while an employee is residing outside of the United States.
TREATMENT OF MENTAL HEALTH/DRUG AND ALCOHOL ABUSE CONDITIONS
We limit benefits for disabilities resulting from drug, alcohol or chemical abuse, dependency, addiction
or from mental health conditions. Our standard benefit payment period for these conditions is 24
months. The benefit payment period is a lifetime maximum for all periods of disability.
If an employee is confined in a hospital or any other type of facility providing treatment for any of
these conditions at the end of the benefit duration, the benefit payment period may be extended
to include the time period the employee remains confined for treatment.
We also offer maximum benefit payment periods of 12 months for voluntary and traditional LTD and
36 months for traditional LTD. Separate limits for mental health conditions and drug and alcohol
conditions are available.
SPECIAL CONDITIONS
We also have a provision that provides for limited benefit durations for disabilities resulting in
special conditions. Special conditions are conditions that are considered self-reported or difficult to
diagnose. If a disability is considered due to a special condition such as chronic fatigue syndrome,
carpal tunnel syndrome, headaches or certain back problems, the benefit payments may be
limited. For voluntary LTD, our standard benefit payment period for these conditions is 24 months.
The benefit payment period is a lifetime maximum for all periods of disability.
A maximum of two benefit limits are allowed, even if all three condition limitations (mental health,
drug and alcohol abuse, and special conditions) are selected. The 12- or
24-month limitation is a lifetime maximum for all periods of disability. All conditions having the
same limited benefit duration count toward a single lifetime maximum.
For traditional LTD, special conditions may be paid the same as any other disability or limited to 12,
24 or 36 months.
For voluntary LTD, options include 12 or 24 months.
31
LONG-TERM
DISABILITY
PRE-EXISTING CONDITIONS
For traditional LTD, our standard contract includes a 3/12 pre-existing conditions limitation.
A condition is considered pre-existing if an employee in the three months prior to his or her
effective date under the policy:
• Received medical treatment, consultation, care or service; or
•Was prescribed or took prescription medications.
Benefits are not paid for disabilities resulting from pre-existing conditions unless, when employees
become disabled, they have been actively at work for one full day after completing 12 months of
coverage under the policy.
Traditional LTD options for pre-existing conditions including 3/12, 3/6/12, 6/12, 6/24, 12/12, 3/3/12,
6/12/24 and 24/24 are also available.
Our voluntary LTD contract includes a 12/12 or 24/24 pre-existing conditions limitation.
REPLACEMENT OF A PRIOR COVERAGE
This provision is included if we replace another LTD policy. If employees are not actively at work
on the day coverage would become effective, or if employees are disabled due to a pre-existing
condition, they may still qualify for benefits if:
• They had LTD coverage under a prior program.
•They are not receiving any benefits under the prior program, but would have been entitled to
these benefits if the prior program remained in force.
•No provision other than the actively at work or pre-existing conditions provision would
otherwise prohibit benefits from being paid under our policy.
Any benefit payable is the lesser of the benefits under our policy or the benefits that would have
been paid under the prior program, had it remained in force.
32
LONG-TERM
DISABILITY
Additional provisions
These provisions provide more options when designing your clients’ disability insurance programs.
MANDATORY REHABILITATION
Disabled employees who could benefit from an individualized rehabilitation plan will be required
to participate in this plan. If employees do not comply with the rehabilitation plan without good
cause, their disability benefits may cease.
GAINFUL OCCUPATION
With this provision, gainful occupation is defined within the definition of disability. Gainful
occupation is defined as any occupation in which employees can reasonably be expected to earn
an amount equal to or greater than their primary monthly benefit amount.
INCREASED INCOME LOSS REQUIREMENT
Under this provision, the inability to earn income during the any occupation period is equal to the
benefit percentage instead of the standard 80%. This provision is normally included but may be
removed for LTD and is required for Voluntary LTD.
FULL CAPACITY
This provision requires that disabled employees work to their full medical and vocational capacity.
If they choose not to, benefits will be paid as if they were working to their full capacity.
40-HOUR WORK WEEK
Under this provision, employees who are working (or have the ability to work) 40 hours per week
are not considered disabled.
NATIONAL ECONOMY
Under this provision, an employee’s occupation will be evaluated as it is performed in the national
economy.
PRUDENT PERSON
Prudent person policy text can be included within the pre-existing condition limitation. Under this
provision, if a reasonably prudent person would have sought medical attention and the claimant
chose not to, the condition may be treated as pre-existing.
33
LONG-TERM
DISABILITY
Suggested LTD product designs
Benefits are offered on a noncontributory, contributory or voluntary basis. Additional benefit
options may be available upon request. All benefits are subject to underwriting approval and
state specifications.
PRODUCT FEATURES
STANDARD BENEFITS
Minimum Benefit
$100
Maximum Benefit
$6,000
Benefit Percentage
60%
Elimination Period
180 days
Benefit Duration
To age 65 (RBD)
Definition of Disability
“Or” definition
Indexing
Applies
Own Occupation Period
Two years
Coordination of Benefits
Direct
Social Security Integration
Primary and Family
Work Incentive Benefit
12 months
Partial Calculation Method
Income Loss
Survivor Benefit
Three months net
Accelerated Survivor Benefit
Applies
Reasonable Accommodation Benefit
$2,000
Rehabilitation Incentive Benefit
Included
Mandatory Rehabilitation
Included
EMPLOYEE CHOICE SAMPLE DESIGN
PROVISION
BASIC
RICHER
Benefit percentage
50%
60%
Benefit duration
2 years
To age 65
Elimination period
180 days
90 days
34
Benefits of integrated STD and
LTD insurance
Our integrated disability package provides quality protection by combining both STD and LTD into
one package. Integrated coverage offers:
•Timely transition from STD to LTD, avoiding gaps in claim payments whenever possible
•Convenient, single claim filing – one claim form, one-time only notification
•In-house occupational services, offering support, resources and encouragement toward
return to work
•Work incentive, reasonable accommodation and rehabilitation incentive benefits generally
included with integrated disability coverage
Our integrated disability package provides
quality protection by combining both STD
and LTD into one package
35
Claims payment calculations
At Principal Life, we recognize the importance of providing quality income protection to employers
and their employees. Our professional claim staff strives to pay claims quickly and accurately. The
following are examples of the steps in calculating STD and LTD benefits. Please note actual claim
payments will differ depending on the specific benefit options and the specifics of the claim.
SHORT-TERM DISABILITY
EXAMPLE 1 – BENEFITS WHEN NOT WORKING
Total disability benefits are payable to employees who are unable to work due to a covered
disability.
Assumptions:
Weekly pre-disability earnings = $1,000
Current earnings = none Coordination of Benefits (COB) =
Direct primary and family Benefit percentage = 60%
Other income sources = none
Total disability benefit calculation:
With direct primary and family coordination
of benefits, other income sources
such as salary continuance or worker’s
compensation payments are subtracted
from the primary benefit. In many cases,
there
are no other income sources
to consider when paying STD benefits.
$1,000 Weekly pre-disability earnings
x 0.60 Benefit percentage
$ 600 Primary benefit
In this example, the total disability benefit
is $600. Total income equals the total
disability benefit plus other income sources.
$ 600 Primary benefit
–$
0 Other income sources
The combination of other income sources
and the total disability benefit replaces 60%
of weekly pre-disability earnings.
$ 600 Total disability benefit
$ 600 Total disability benefit
+$
0 Other income sources
$ 600 Total income
36
EXAMPLE 2 – BENEFITS WHEN WORKING
Financial incentives are provided for disabled employees to remain on the job or to work on a
limited or part-time basis.
If the work incentive benefit applies, an employee will continue to receive total disability
benefit payments with no reductions for current earnings, unless the combination of disability
benefits, work earnings and other income sources exceeds 100% of his or her weekly predisability earnings. If work incentive is not included in the policy, the benefit is paid in
proportion to income lost.
Assumptions:
Weekly pre-disability earnings = $1,000
COB = Direct primary and family
Current earnings = $500
Other income sources = none Benefit percentage = 60%
Calculation when policy includes work
incentive benefit:
In this example, the work incentive benefit
is $500. Total income equals the work
incentive benefit plus current earnings.
The work incentive benefit is the lesser of:
$1,000 Weekly pre-disability earnings
–
$0 Other income sources
–$ 500 Current earnings
$ 500 Net weekly benefit
or
$1,000 Weekly pre-disability earnings
x 0.60 Benefit percentage
$ 600 Primary benefit
–$
0 Other income sources
$ 600 Net weekly benefit
$ 500 Current earnings
+$ 500 Work incentive benefit
The combination of current earnings and
the work incentive benefit replaces 100% of
pre-disability earnings.
$1,000 Total income
37
EXAMPLE 2 – BENEFITS WHEN WORKING (CONT’D)
Calculation when policy does
not include work incentive benefit:
Calculate income loss percentage:
$1,000 Weekly pre-disability earnings
– $ 500 Current earnings
$ 500 Income loss
$ 500 Income loss
÷$1,000 Weekly pre-disability earnings
50% Income loss percentage
Calculate benefit payment:
$1,000 Weekly pre-disability earnings
x 0.60 Benefit percentage
$ 600 Primary benefit
–$
0 Other income sources
$ 600 Net weekly benefit
x 0 .50 Income loss percentage
Total income equals the residual disability
benefit plus current earnings.
$ 300 Residual disability benefit
$ 300 Residual disability benefit
+$ 500 Current earnings
The combination of current earnings and
the residual disability benefit replaces 80%
of weekly pre-disability earnings.
$ 800 Total income
38
LONG-TERM DISABILITY
EXAMPLE 1 – BENEFITS WHEN NOT WORKING
Total disability benefits are payable to employees who are unable to work due to a covered
disability.
Assumptions:
Pre-disability earnings = $5,000
COB = Direct – primary and family
Current earnings = none
Primary Social Security amount = $1,699
Benefit percentage = 60%
Dependent Social Security amount = $849
Total disability benefit calculation:
$3,000 Primary monthly benefit
ith direct – primary and family
W
coordination of benefits, other income
sources such as Social Security disability
payments are subtracted from the primary
monthly benefit.
$3,000 Primary monthly benefit
–$1,699 Primary Social Security
–$ 849 Dependent Social Security
In this example, the total disability benefit
is $452. Total income equals the total
disability benefit plus other income sources.
$5,000 Pre-disability earnings
x 0.60 Benefit percentage
$ 452 Total disability benefit
The combination of other income sources
and the total disability benefit replaces 60%
of pre-disability earnings.
$1,699 Primary Social Security
+$ 849 Dependent Social Security
+$ 452 Total disability benefit
$3,000 Total income
39
EXAMPLE 2 – BENEFITS WHEN WORKING
Financial incentives are provided for disabled employees to remain on the job or to
work on a limited or part-time basis.
If the work incentive benefit applies, an employee will continue to receive total disability
benefit payments with no reductions for current earnings during the first 12 months
after return to work, unless the combination of disability benefits, work earnings and
other income sources exceeds 100% of his or her pre-disability earnings. After the
12-month work incentive period, benefits are paid in proportion to income lost.
Assumptions:
Pre-disability earnings = $5,000
COB = Direct – primary and family
Indexed pre-disability earnings = $5,000
Primary Social Security amount = None Current earnings = $2,500
Benefit percentage = 60%
Dependent Social Security amount = None Calculation during the 12-month work
incentive period:
The work incentive benefit is the lesser of:
$5,000 Indexed pre-disability earnings
–$
0 Other income sources
–$2,500 Current earnings
In this example, the work incentive benefit
is $2,500. Total income equals the work
incentive benefit plus current earnings.
$2,500 Net monthly benefit
or
$5,000 Pre-disability earnings
x 0.60 Benefit percentage
$3,000 Primary monthly benefit
–$
0 Other income sources
$3,000 Net monthly benefit
$2,500 Current earnings
+$2,500 Work incentive benefit
$5,000 Total income
The combination of current earnings and
the work incentive benefit replaces 100% of
pre-disability earnings.
40
EXAMPLE 2 – BENEFITS WHEN WORKING (CONT’D)
Calculation after the work incentive
period:
Calculate income loss percentage:
$5,000 Indexed pre-disability earnings
–$2,500 Current earnings
$2,500 Income loss
$2,500 Income loss
÷$5,000 Indexed pre-disability earnings
50% Income loss percentage
Calculate benefit payment:
In this example, the Residual Disability
Benefit is $1,500. Total income equals
the residual disability benefit plus current
earnings.
$5,000 Pre-disability earnings
x 0.60 Benefit percentage
$3,000 Primary monthly benefit
–$
0 Other income sources
$3,000 Net monthly benefit
x 0.50 Income loss percentage
$1,500 Residual disability benefit
The combination of current earnings and
the residual disability benefit replaces 60%
of pre-disability earnings.
$1,500 Residual disability benefit
+$1,500 Current earnings
$3,000 Total income
FOR MORE INFORMATION
Contact your local sales representative or go to www.principal.com/financialprofessional. We give
you access to tools and services to help make your job easier, plus we’ll give you an edge in the
disability market.
41
Your company of choice
Founded in 1879, the Principal Financial Group® (The Principal®) is a global investment
management leader. The Principal offers businesses, individuals and institutional clients a wide
range of financial products and services, including retirement, asset management and insurance,
through its diverse family of financial services companies.
You can count on us for employee benefit solutions. Principal Life Insurance Company, a member
of The Principal, can help you design benefit programs that help your clients attract and retain
quality employees.
With more than 70 years in the employee benefits marketplace, we offer you and your clients the
expertise of our local benefit professionals, a broad portfolio of competitive group products and
outstanding service. And we’re constantly looking for new ways to meet and exceed customer
expectations.
WE’LL GIVE YOU AN EDGE®
Principal Life Insurance Company, Des Moines, Iowa 50392-0002, www.principal.com
For broker use only. Not intended for use in sales situations or with the general public. This material is intended to provide general
information about group disability insurance offered by Principal Life Insurance Company. It is not an insurance contract or a
complete statement of the benefits, limitations, conditions or restrictions of the insurance described. If any provision presented here is found
to be in conflict with state or federal law, that provision will be applied to comply with state or federal law. All examples are provided for
illustrative purposes only, and are not a guarantee of coverage. Claims will be paid according to the group contract.
GP53704-06 | 09/2015 | © 2015 Principal Financial Services, Inc.