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Chapter 8 Group Disability Income Benefits

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Chapter 8 Group Disability Income Benefits Powered By Docstoc
					Chapter 8

Group Disability Income
 Benefits




                          1
Purpose: To Replace Lost
Income Because of
Sickness or Accident

   Significance
    • Person more likely to be disabled for
      at least 90 days before age 65 than to
      die
    • One out of 10 employees permanently
      disabled prior to age 65
    • Impact more severe than death
      because disabled worker must be
      supported
    • Employers less likely to provide
      coverage than either life insurance or
      medical expense benefits




                                           2
Types of Plans

• Short-term: benefits usually 6
  months or less
• Long-term
• Important to coordinate them
  with each other and Social
  Security




                                   3
Sick Leave (Salary
Continuation) Plans

• Uninsured by definition
• Eligibility
  • Full time
  • Satisfy short (1 to 3 months)
    probationary period
  • Often limited to specific classes
    of employees




                                        4
Benefits

• Usually 100 percent of salary, but
  possibly reduced benefits after a
  period of full pay
• Duration
   • A certain number of sick days each
     year, possibly with carryover to next
     year if unused
   • May increase with length of
     employment
• Usually coordinated with social
  insurance benefits
• Proof of disability required if
  disability lasts more than 1 week



                                             5
Table 8.1




            6
Table 8.2




            7
Table 8.3




            8
Insured Disability
Income Plans
• Eligibility: similar to group term insurance
  plans (that is, full time, actively at work,
  satisfaction of probationary period, etc.)
   • Short-term plans often provided to wider
      range of employees and may cover all
      employees. However, insured plan may
      apply to union employees only, with
      other employees under uninsured plan.
   • Long-term plans often limited to salaried
      employees or higher paid employees
        • Claims less than hourly employees
        • Less likely to have adequate
           benefits under Social Security
   • Probationary periods
        • Short-term plans: 0 days to 3 months
        • Long-term plans: 3 months to 1 year




                                             9
Definition of disability

• Short-term plans: the total and continuous
  inability to perform any and every duty of
  regular occupation
• Long-term plans: several variations
   • A few plans use short-term definitions
   • A few plans are very restrictive and
     require inability to engage in any and
     every occupation for which employee is or
     can reasonably become qualified because
     of training, education or experience
   • Most plans use a. for 24 or 36 months and
     b. thereafter
   • Some plans also have an earnings test;
     benefits paid if disability results in
     specified drop of earnings, such as 50
     percent or more




                                            10
Benefits

• Common provisions of short-
  term plans
  • For nonoccupational disabilities
  • Benefit equal to flat amount or
    percentage or salary (50 to 100
    percent)
  • Waiting period of 1 to 7 days for
    sicknesses; none for accidents
  • Benefit duration of 13 to 26
    weeks
  • Coordinated with social
    insurance if occupational
    disabilities covered



                                    11
Table 8.4




            12
Table 8.5




            13
Benefits (cont.)

• Common provisions of long-
  term plans
  • For both occupational and
    nonoccupational disabilities
  • Benefits usually a percentage of
    earnings
     • 50 to 70 percent
     • Monthly maximum
  • Waiting period of 30 days to 1
    year, but 6 months most common
  • Benefit duration from 2 years to
    life
  • Benefits duration often decreases
    for disabilities after age 60 or 62



                                       14
Table 8.6




            15
Table 8.7




            16
Common provisions of
long-term plans (cont.)

• Coordinated with social insurance
  and other disability benefits
   • Full integration
   • Dual integration: higher overall benefits if
     other benefits exist
   • Often a minimum benefit to prevent total
     integration
   • Integration reduction often frozen at initial
     level
• Supplemental benefits
   • Allow employee to purchase benefits
     above those provided by a base plan
   • Carve out benefits for executives and
     provide them with more liberal plan
   • Provide additional benefits to executives
     under individual policies




                                                 17
Other contract provision
• Claims
   • Insurer must be notified within 20-30
     days
   • Proof of loss must be filed within 90
     days of start of disability
   • Periodic verification required for ongoing
     disabilities
• Payment of benefits
   • After proof of loss
   • Usually to employee
• Rehabilitation
   • Becoming more common as a method
     of controlling claim costs
   • Works best with very early intervention
   • In long-term contracts
   • Allows trial work period without
     complete reduction of benefits
   • May include benefits for therapy and
     training



                                             18
Other contract provisions
(cont.)

• Termination
   • Similar to group term insurance but
     conversion privilege rarely included
   • Benefits continue for disabled
     employees who are receiving benefits
     when master contract terminated
• Additional benefits
   • Some plans have cost-of-living
     adjustment, usually based on
     consumer price index
   • Some plans make contributions to
     pension plans
   • Some plans continue benefits to
     survivors of disabled employee, but
     duration limited to 2 years or less




                                           19
Federal Tax Treatment

• Employer contributions tax deductible
• Employee contributions not deductible
• Employer contributions do not create
  taxable income to employees
• Taxation of benefits
   • Fully contributory plans: no tax
   • Noncontributory plans
       • Included in income
       • But, employee may be eligible for tax
         credit
   • Partially contributory plans; benefits
     allocated to employee and employer
     contributions and taxed accordingly
• State taxation varies and may be more
  favorable than federal taxation




                                                 20

				
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