Disability Insurance

We refer to disability insurance as "Pay Check Insurance". Should an employee be unable to work as a result of an off-job accident or injury or as a result of an illness or sickness (including maternity), disability will pay the employee during their period of disability.

There are three components to disability insurance: 1.) the Elimination or Waiting Period, 2.) the Benefit Period and 3.) the Benefit Amount.

Think of the Elimination/Waiting Period as a deductible. It's how long the employee must be disabled before being eligible for disability payments. Normally expressed in days, for Short-Term Disability, it typically ranges from 0 to 30 days with 14 days being the most common. Long-Term Disability, if offered, begins after short-term disability ends As a result, the elimination period for long-term disability is 1 day longer than the short-term disability benefit period.

The Benefit Period is the maximum length of time benefits will be paid to an employee. Short-term disability policies range from 3 months up to 2 years with 3 months being the most common. Long-term disability can pay up to Social Security retirement age (age 65 - 67). With both short-term and long-term disability, the longer the benefit period, the higher the premium.

The Benefit Amount is a percentage of the employee's gross income that is paid to the employee. Insurance carriers want us to have an incentive to get back to work sooner rather than later, so typically disability insurance will replace up to 60% of an employee's gross pay. We design disability payments to be tax-free to employees (no social security, federal or state withholdings and no taxes due when taxes are filed). As a result, if an employee selects the maximum benefit offered (60%), because the disability payment to the employee is tax-free, the 60% is equivalent to reaching roughly 80-85% of the employees gross pay. We design disability such that employees can choose the payment they want to receive ranging from $400 monthly up to 60% of their gross pay. Disability insurance should be paid with after-tax payroll deductions. That results in tax-free benefits. If disability is paid for with pre-tax payroll deductions, disability payments are then taxable.