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The LTD Denial Habit
Doug Hessel, Partner, Johnson & Dugan
Most Americans are
financially unprepared to endure a health problem that renders them incapable
of working. Strangely, every survey on the subject shows they actually know it.
Evidently there is a denial habit at work here intertwined with concerns about
the cost of long-term disability (LTD) insurance.
It’s important to
keep in mind when approaching the topic that while the probability of becoming disabled
is small, the potential loss is extremely large. Self-insurance is not a
reasonable option. More is the wonder then that a 2005 study published by the
National Bureau of Economic Research found that the typical consumer is willing
to pay a premium that far exceeds the actual risk. And yet, people don’t act on
their own concerns. If you share their denial habit, here are some helpful
facts and options to consider for yourself and your employees.
The good news for
Bay Area employers is that a relatively easy fix can be found close at hand.
Relatively inexpensive individual and group LTD policies are available to companies
that can go a long way toward relieving the financial burden of not being able
to earn a living due to a physical problem, whether for a period of months or
years.
White and Gold collar
professionals are “preferred risks” for disability carriers. This means the
rates charged are among the lowest for any occupational risk. Costs do vary by
the age of the insured or the insured population but generally range from
one-half to 1.5 percent of covered payroll and replace from 60 percent to
two-thirds of an employee’s salary up to $10,000 a month. Keep in mind though
that the benefits of group LTD plans are coordinated with State Disability,
Social Security Disability, and Workers Compensation, so that the benefits of
the policy represent the difference between the social benefits and the net
replacement level guaranteed by the policy.
If you are a younger
professional, you might want to consider purchasing individual disability
coverage that you can keep throughout your professional career. By securing a
non-cancellable disability plan with a top-rated insurance carrier while still
young, you can “insure your insurability.” Good individual policies contain
cost-of-living increases and options to purchase future coverage without further
evidence of insurability. Policies cost from one to four percent of gross
earnings depending on plan features. Once the policy issued, rates can’t change
unless the policyholder exercises additional options/coverage. Since your professional
life is mobile, why not make your essential benefits mobile as well?
If you’re a baby
boomer, whether just turning 50 or older, there may be time to revamp your
disability insurance plans. You can consider a new group plan or individual
plan, or you might want to alter your current coverage to provide tax-free
disability benefits by paying premiums with after-tax dollars.
Finally, if you’re
managing benefit packages for your firm, some creative planning will allow you
to provide a combination of group and individual plans that will maximize your
employees’ benefits.
Contact your Johnson & Dugan Account Executive for more information on the right disabiltiy plan for your employees.
