By: Danny Cox, GBDS
As an employee benefits adviser for over a decade, I’ve had the same conversation countless times with employees.
I am most often asked the question, “Why do I need disability insurance?”
My reply is always in the form of a question–“Do you need your paycheck?” As one might expect, the answers is most often a resounding, “Yes! Of course!”
My second, follow-up question is, “How long can you go right now without a paycheck?” The vast majority of the time, the employee responds that he or she cannot miss a single paycheck without significant financial repercussions.
On occasion, an employee shares that they do in fact have 6 months to 1 year of savings to safeguard their finances in the event of job loss or short term disability. In this case, it’s important to differentiate between short term and long term disability.
Short term disability is any sickness or disability that limits an employee’s ability to work for 6 months or less.
Long term disability is a disability lasting 6 months or longer, often times permanently reducing an employee’s ability to work for a living.
While statistically a short term disability is most likely – affecting nearly 6% of the work force, a long term disability can be all the more financially devastating.
Most Americans believe that in the event of a long term or permanent disability, they would begin to receive Social Security Disability benefits. What they often don’t realize is that applying to receive and then being approved for social security benefits is a long, tedious, sometimes litigious ordeal that can leave them in dire financial straights in the interim.
Furthermore, Social Security Disability is typically inadequate to restore a worker to their employed income. Long term disability works alone or in tandem with Social Security Disability to restore the employee to 60% of their covered monthly earnings.
For the vast majority of working Americans, their singular greatest financial asset is their ability to work and earn a paycheck. A report from CareerBuidler via Forbes.com indicates that nearly 80% of working Americans live “paycheck to paycheck.”
Additional, enlightening statistics from this study include the following:
-Nearly one in 10 workers making $100,000+ live paycheck to paycheck.
-More than 1 in 4 workers do not set aside any savings each month.
-Nearly 3 in 4 workers say that they are in debt.
-More than half believe they will always have debt to pay.
-More than half of minimum wage workers say they have to work more than one job to make ends meet.
The survey also found that only 32% of the nearly 3,500 full-time workers surveyed use a budget to manage their income.
Lastly, 56% of those surveyed saved a mere $100 or less each month for emergencies or income interruption.
As you can see, the vast majority of Americans are not in a position to go weeks or months without a steady income. Furthermore, many employees believe that worker’s compensation would replace their income if they could not work, which we know is not the case since in 2016, only one percent of American workers missed work because of an occupational illness or injury.
As an employer, offering disability insurance to your employees benefits your company in a number of ways:
The offering of disability insurance educates your work force about the differences between disability and worker’s compensation, reducing potential, costly abusive worker’s compensation claims.
It empowers your employees to make wise financial decisions for their family’s protection.
It increases the attractiveness of your overall benefits package to potential employees.
Offering a richer benefits package increases employee longevity, reducing costly turnover.
The numbers don’t lie- more than 1 out of 20 employees will undergo a short term disability event that leaves them unable to work for up to 6 months. Without proper financial safeguards, this would be catestrophic to most American families.
If you have 100 employees, which 5 are you willing to allow irreparable financial loss?
That challenging question ushers in the discussion of a common but not often considered scenario:
As a business owner, you likely have several long-term employees who are dedicated to their work and bring great value to your business. After years of working together, you will have likely developed a close, friendly relationship with these employees as well. If one of these employees begins to miss work, using up vacation time and paid days off due to illness, you will be in the unfortunate situation of having to decide how your business will continue to support this faithful employee who cannot return to work due to declining health. Will your business give this employee payday advances? Loans? Gifts? Bonuses? How will you care for an employee who has faithfully served you for 20+ years but can no longer perform his or her duties and would be in dire financial straights without your help? Will you have to choose let them handle it alone and abandon them in need? Or continue to pay an employee who cannot work?
Unfortunately, this situation happens countless times throughout businesses of all sizes in all sectors. Fortunately, this situation is entirely avoidable. Employer paid long term or short term disability eases the tensions found in this situation, allowing for financial support of injured or sick employees without it coming straight from the business… Month after month, year after year.
As overwhelmingly important as disability coverages are, they can also be overwhelmingly confusing. What’s right for your business? Each business is intricately different and deserves individualized solutions.
The benefits advisers at Harmon, Dennis, Bradshaw are experts at discussing the ins and outs of your workforce and what will serve them best all the while negotiating on your behalf to make your benefits package rich, rewarding, and affordable.