Why Employers Should Include
Disability Insurance In Their
Employee Benefits Package
Disability insurance – often known in the workplace Short-Term Disability (STD) as
Long-Term Disability (LTD) – is a form of income protection, or “insurance for income”. If
an employee is forced to miss work due to illness or injury, their disability insurance plan
provides money to replace a portion of their lost income. If employees do not have
access to disability insurance at work, most are unlikely to have it at all.
May 2016
1. Attract and Retain The Best Talent
• Employees care about benefits. More than three quarters of
all employees consider benefits an important factor in
evaluating a job offer.1
• Employees want more benefits choices. In a recent study by
MetLife, 65 percent of employees said having benefits choices
would increase their loyalty to their current employer. That
same study showed that 80 percent of employees value
customized benefits. And 60 percent said they are willing to
bear more of the cost to have a choice that meets their needs.2
• Unless you’re a very small employer, it’s expected. Over 80
percent of companies with 100 or more employees offer
disability insurance to their employees.3
• Employees would choose it if they could. According to a
recent study by Prudential, if employees were given $100 to
spend on benefits, they would allocate $5 to disability
insurance. Based on the relative cost of disability insurance
compared to other benefits, that would be more than enough.4
More than 80% of firms with at least 100
employees offer disability insurance
25,000 or more
2,500 to 24,999
500 to 2,499
100 to 499
50 to 99
25 to 49
10 to 24
2 to 9
0%
25%
50%
75%
Source: SHRM and Mass Mutual, Employer Perspectives on Disability Benefits,
2013. LIMRA, Trends in the U.S. Small Business Market, 2013.
100%
2. Keep Employees Productive
• Employees’ Financial Stress Reduces Productivity. A 2014
study by SHRM found that seven in ten HR professionals report
that financial stress affects employees’ work performance.5 A
study by MetLife found that 57 percent of employees are very
concerned about the financial impact of a primary earner
experiencing a serious illness or injury.2
• Benefits play a major role in employees’ financial security.
A study by Guardian found that three-quarters of employees say
benefits play a major role in how financially secure they feel.6
MetLife found that 73 percent of employees say insurance and
benefits give them peace of mind for the unexpected.2
• Employees with disability insurance are more likely to
return. Disability insurance companies employ sophisticated
programs to help claimants focus on their recovery and return to
the workforce. A study by the Integrated Benefits Institute
estimates that poor health costs the economy over $500 billion
per year—over $200 billion of which is due to lost productivity.7
With SHRM estimating that replacing an employee can cost 60
percent of their annual salary, helping employees return can
have a significant impact.8
Employers who offer long-term disability insurance say they do so because…
Want to offer a well rounded benefits package
90%
Want to demonstrate they care about employees
88%
Employees value/appreciate the benefit
86%
Want to attract and retain good employees
82%
It's what a responsible employer does
81%
Consider it a necessary benefit
80%
Source: Unum / Consumer Federation of America, 2015
The Role of Disability Insurance for Small Employers
3. Employees Need Their Income, and Need
to Protect It
• Employees are living paycheck to paycheck and can’t afford
even a short-term interruption. A recent study by the Federal
Reserve found that 47 percent of Americans cannot cover a
$400 emergency.9 That’s pretty alarming when we consider that
the average employer-sponsored health insurance deductible is
over $1,000.10 Meanwhile, according to a Unum study, only
about 1 in 5 working Americans say they wouldn’t suffer
financial hardship if they could not work for three months.11
• Employees are already carrying too much debt. Which
means an income interruption would be crippling. According to
a 2015 survey by Price Waterhouse Cooper, 50 percent of
employees carry credit card balances, and 26 percent find it
difficult to make their minimum payment.12 Estimates about
average credit card balances vary. In 2013, the Federal
Reserve reported that 38 percent of Americans carry credit card
debt, with an average balance over $5,700.13 Almost two-thirds
of owner occupied homes have an outstanding mortgage
balance, with a median balance of $121,000.14
Are you required to have temporary disability coverage? You are if you
have employees in these states/territories:
State
Minimum Length
Maximum Length
California
1 week
52 weeks
Hawaii
1 week
26 weeks
New Jersey
1 week
26 weeks
New York
1 week
26 weeks
Rhode Island
1 week
30 weeks
Puerto Rico
1 week
26 weeks
4. It’s Part of Being a Great Employer
• Employees, especially millennials, need their employer’s
help with financial security. A recent study by MetLife found
that 75 percent of millennials think their employer has some
responsibility for their financial well-being. Additionally, 62
percent of employees are looking to their employers for more
help in achieving financial security through employee benefits.15
• It helps avoid heartbreaking outcomes. Consider that a
recent study by Unum found that almost half of LTD claimants
felt they could not have afforded to stay in their home without
their LTD benefits.16 When your employees don’t have disability
insurance, an illness or injury can have devastating
consequences. As their employer, it’s likely you’ll be the bearer
of bad news, whether it’s deciding to terminate their
employment or telling them there’s nothing that can help. If they
have disability insurance, even though you may need to end
their employment, they’ll have a reliable source of income while
they focus on their recovery.
• If your employees don’t get disability insurance at work,
they likely will not get it at all. Our recent consumer study
found that three-quarters of employees with disability insurance
purchased it at work.17 A study by Guardian estimated that this
figure is over 85 percent.6 When you consider that only one in
five American families has a relationship with a life/disability
insurance agent18, it’s easy to see why the workplace is the
primary source of coverage for most people.
• Disability insurance is a family friendly benefit. Short-term
disability plans typically cover up to six weeks for a routine
pregnancy. Only 12 percent of U.S. employees are eligible for
paid family leave19. Unless you’re one of the minority of
employers who provide this, disability insurance income will be
a critical financial benefit for your company’s new moms.
5. It’s a Good Use of Benefits Dollars
• It’s very affordable compared with other common benefits.
According to data from the Bureau of Labor Statistics, the
average cost of providing a full-time employee with STD and
LTD benefits is about eleven cents per hour worked—or $220
per year20. In comparison, the average employer contribution to
the cost of an employee’s health insurance is over $5,000 per
year10, and retirement contributions about $2,500 per year. 20
• It’s likely more affordable than individual coverage. A
typical individual disability insurance policy costs about one to
three percent of the employee’s salary. An employee making
the average hourly wage according to the Department of Labor
would earn $22.14 an hour, or $44,000 a year at 40 hours per
week. That would be at least $440 for Individual Disability
coverage. Their likely cost for employer coverage would be
nearer $200.20 Even better news, a study by EBRI showed that
most workers (80 percent) understand that this is a key
advantage of employer-sponsored benefits.21
• It’s the foundation of your employees’ financial security.
Without their income, employees can’t contribute to their
retirement, pay health insurance premiums, pay down debt,
make major purchases, or accomplish whatever other financial
goals they have.
What do I do about it?
There are options to fit any budget – including plans that are
completely employee paid, but are more affordable for employees
than individual coverage. Ask your benefits broker about what
options exist, or contact one of the member insurance companies
of the Council for Disability Awareness.
http://disabilitycanhappen.org/about/members.asp
Relative Costs of Different Employee Benefits
Sources
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21.
Employee Benefits Research Institute, EBRI Notes, December 2014
th
MetLife, 12 Annual Employee Benefits Study, 2014
SHRM and Mass Mutual, Employer Perspectives on Disability Benefits, 2013
th
Prudential, 8 Annual Study of Employee Benefits, 2013
SHRM Survey on Financial Wellness and Education, 2014
The Guardian Third Annual Workplace Benefits Study, 2015
Integrated Benefits Institute, “Poor Health Costs U.S. Economy $576 Billion”, October 2012
SHRM Foundation, “Retaining Talent”, 2008
U.S. Federal Reserve, Report on the Economic Well-Being of U.S. Households, May 2015
Kaiser Family Foundation, Employer Health Benefits Survey, 2015
Unum / Consumer Federation of America, Employee Knowledge and Attitudes About
Employer-Provided Disability Insurance, 2012
PWC Employee Financial Wellness Survey, 2015
U.S. Federal Reserve, Survey of Consumer Finances, 2013
U.S. Census Bureau, American Housing Survey, 2013
th
MetLife, 14 Annual Employee Benefits Study, 2016
Unum, Employer-Sponsored Disability Insurance: The Beneficiary’s Perspective, 2013
Council for Disability Awareness, America’s Income Protection Picture, 2014
LIMRA, The Facts of Life, 2010
U.S. Dept of Labor, Paid Family and Medical Leave Factsheet, June 2015
U.S. Dept of Labor, Bureau of Labor Statistics, Employee Benefits Survey, March 2015
Employee Benefits Research Institute, Health & Voluntary Workplace Benefits Survey, 2015
The Council for Disability Awareness
477 Congress St, 5th Floor, Portland, ME 04101
http://DisabilityCanHappen.org