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The Importance of Group Disability Insurance and How it Works

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Finding and retaining a trusted, productive team of employees is a challenge for smaller businesses. Instead of enduring a high and costly turnover rate, there are actions you can take to improve employee retention. By offering disability insurance as part of their benefits package, companies can show their employees that they care about their well-being and are committed to supporting them in the event of a disability. This can help build loyalty and increase job satisfaction.

Protecting the Bottom Line

Group disability insurance can help protect a company’s bottom line. If an employee becomes disabled and is unable to work, the policy can help pay for the cost of medical care and provide the employee with financial support. By offering disability insurance, companies can transfer some financial risks to an insurance provider, which can protect the company’s financial health when an employee is disabled due to a health condition or accident.

Why You Should Have Group Disability Insurance

Group disability benefits can be cost-effective, and all employees are typically eligible. When employees are unable to work as a result of injury or illness, it pays them a monthly benefit. All they have to do is prove that they are disabled and cannot work. To assess whether or not benefits should be paid to an employee, the insurance company will want to know:

  • Is the employee being cared for by a doctor?
  • Does the employee’s injury or illness keep them from working?
  • Is the employee receiving any income from employment?

Group Disability Insurance works by providing income replacement benefits to employees who are unable to work due to a disability. When an employee becomes disabled, they must file a claim with the insurance company. The insurance company will then review the claim and determine if the employee is eligible for benefits.

When the insurance provider determines an employee is eligible for benefits, the insurance company will begin paying a percentage of the employee’s salary. The percentage of salary paid varies depending on the policy and the length of time the employee is unable to work due to disability. The insurance company will continue to pay benefits until the employee is able to return to work or until the policy’s benefit period ends.

Different Types of Group Disability Plans

There are two main types of group disability insurance – short-term and long-term. They can also be voluntary, paid for by the employer, or both.

  • Short-term group disability: A short-term group disability plan pays between 60 and 70% of an employee’s salary for under a year. It could cover pregnancy, recovery from surgery, and more. These types of plans pay employees when sick pay runs out.
  • Long-term group disability: Long-term disability insurance provides benefits for a more extended period, usually up to several years or until the employee reaches retirement age. This type of insurance is designed to cover employees who are unable to work due to a permanent or long-term disability, such as a serious illness or injury. Long-term disability insurance typically pays a percentage of the employee’s salary, ranging from 50% to 70%, depending on the policy. Some policies may also include a waiting period before benefits are paid.

If you offer a voluntary plan, whether short-term or long-term, the benefits paid are tax-free. The cost of a group disability plan is determined by several factors, such as the coverage being offered, the number of employees, the type of business, and the group disability insurance policy details. Generally, premiums for group disability are less costly than individual coverage and can be customized to fit the employer’s budget.

Is Group Disability Insurance Right for Your Small Business?

If you own a small business, group disability insurance can be an essential benefit to protect your employees’ income, helps companies attract and retain employees, and provides tax benefits for employers. By offering this coverage, companies can demonstrate their commitment to their employees’ well-being and provide them with peace of mind. Contact our local agent to learn more about group disability insurance for guidance and support

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