Why Employers Should Include Disability Insurance In Their Employee Benefits Package

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1 Why Employers Should Include Disability Insurance In Their Employee Benefits Package Disability insurance often known in the workplace Short-Term Disability (STD) as Long-Term Disability (LTD) is a form of income protection, or insurance for income. If an employee is forced to miss work due to illness or injury, their disability insurance plan provides money to replace a portion of their lost income. If employees do not have access to disability insurance at work, most are unlikely to have it at all. May 2016

2 1. Attract and Retain The Best Talent Employees care about benefits. More than three quarters of all employees consider benefits an important factor in evaluating a job offer. 1 Employees want more benefits choices. In a recent study by MetLife, 65 percent of employees said having benefits choices would increase their loyalty to their current employer. That same study showed that 80 percent of employees value customized benefits. And 60 percent said they are willing to bear more of the cost to have a choice that meets their needs. 2 Unless you re a very small employer, it s expected. Over 80 percent of companies with 100 or more employees offer disability insurance to their employees. 3 Employees would choose it if they could. According to a recent study by Prudential, if employees were given $100 to spend on benefits, they would allocate $5 to disability insurance. Based on the relative cost of disability insurance compared to other benefits, that would be more than enough. 4 More than 80% of firms with at least 100 employees offer disability insurance 25,000 or more 2,500 to 24, to 2, to to to to 24 2 to 9 0% 25% 50% 75% 100% Source: SHRM and Mass Mutual, Employer Perspectives on Disability Benefits, LIMRA, Trends in the U.S. Small Business Market, 2013.

3 2. Keep Employees Productive Employees Financial Stress Reduces Productivity. A 2014 study by SHRM found that seven in ten HR professionals report that financial stress affects employees work performance. 5 A study by MetLife found that 57 percent of employees are very concerned about the financial impact of a primary earner experiencing a serious illness or injury. 2 Benefits play a major role in employees financial security. A study by Guardian found that three-quarters of employees say benefits play a major role in how financially secure they feel. 6 MetLife found that 73 percent of employees say insurance and benefits give them peace of mind for the unexpected. 2 Employees with disability insurance are more likely to return. Disability insurance companies employ sophisticated programs to help claimants focus on their recovery and return to the workforce. A study by the Integrated Benefits Institute estimates that poor health costs the economy over $500 billion per year over $200 billion of which is due to lost productivity. 7 With SHRM estimating that replacing an employee can cost 60 percent of their annual salary, helping employees return can have a significant impact. 8 Employers who offer long-term disability insurance say they do so because Want to offer a well rounded benefits package 90% Want to demonstrate they care about employees 88% Employees value/appreciate the benefit 86% Want to attract and retain good employees 82% It's what a responsible employer does 81% Consider it a necessary benefit 80% Source: Unum / Consumer Federation of America, 2015 The Role of Disability Insurance for Small Employers

4 3. Employees Need Their Income, and Need to Protect It Employees are living paycheck to paycheck and can t afford even a short-term interruption. A recent study by the Federal Reserve found that 47 percent of Americans cannot cover a $400 emergency. 9 That s pretty alarming when we consider that the average employer-sponsored health insurance deductible is over $1, Meanwhile, according to a Unum study, only about 1 in 5 working Americans say they wouldn t suffer financial hardship if they could not work for three months. 11 Employees are already carrying too much debt. Which means an income interruption would be crippling. According to a 2015 survey by Price Waterhouse Cooper, 50 percent of employees carry credit card balances, and 26 percent find it difficult to make their minimum payment. 12 Estimates about average credit card balances vary. In 2013, the Federal Reserve reported that 38 percent of Americans carry credit card debt, with an average balance over $5, Almost two-thirds of owner occupied homes have an outstanding mortgage balance, with a median balance of $121, Are you required to have temporary disability coverage? You are if you have employees in these states/territories: State Minimum Length Maximum Length California 1 week 52 weeks Hawaii 1 week 26 weeks New Jersey 1 week 26 weeks New York 1 week 26 weeks Rhode Island 1 week 30 weeks Puerto Rico 1 week 26 weeks

5 4. It s Part of Being a Great Employer Employees, especially millennials, need their employer s help with financial security. A recent study by MetLife found that 75 percent of millennials think their employer has some responsibility for their financial well-being. Additionally, 62 percent of employees are looking to their employers for more help in achieving financial security through employee benefits. 15 It helps avoid heartbreaking outcomes. Consider that a recent study by Unum found that almost half of LTD claimants felt they could not have afforded to stay in their home without their LTD benefits. 16 When your employees don t have disability insurance, an illness or injury can have devastating consequences. As their employer, it s likely you ll be the bearer of bad news, whether it s deciding to terminate their employment or telling them there s nothing that can help. If they have disability insurance, even though you may need to end their employment, they ll have a reliable source of income while they focus on their recovery. If your employees don t get disability insurance at work, they likely will not get it at all. Our recent consumer study found that three-quarters of employees with disability insurance purchased it at work. 17 A study by Guardian estimated that this figure is over 85 percent. 6 When you consider that only one in five American families has a relationship with a life/disability insurance agent 18, it s easy to see why the workplace is the primary source of coverage for most people. Disability insurance is a family friendly benefit. Short-term disability plans typically cover up to six weeks for a routine pregnancy. Only 12 percent of U.S. employees are eligible for paid family leave 19. Unless you re one of the minority of employers who provide this, disability insurance income will be a critical financial benefit for your company s new moms.

6 5. It s a Good Use of Benefits Dollars It s very affordable compared with other common benefits. According to data from the Bureau of Labor Statistics, the average cost of providing a full-time employee with STD and LTD benefits is about eleven cents per hour worked or $220 per year 20. In comparison, the average employer contribution to the cost of an employee s health insurance is over $5,000 per year 10, and retirement contributions about $2,500 per year. 20 It s likely more affordable than individual coverage. A typical individual disability insurance policy costs about one to three percent of the employee s salary. An employee making the average hourly wage according to the Department of Labor would earn $22.14 an hour, or $44,000 a year at 40 hours per week. That would be at least $440 for Individual Disability coverage. Their likely cost for employer coverage would be nearer $ Even better news, a study by EBRI showed that most workers (80 percent) understand that this is a key advantage of employer-sponsored benefits. 21 It s the foundation of your employees financial security. Without their income, employees can t contribute to their retirement, pay health insurance premiums, pay down debt, make major purchases, or accomplish whatever other financial goals they have. What do I do about it? There are options to fit any budget including plans that are completely employee paid, but are more affordable for employees than individual coverage. Ask your benefits broker about what options exist, or contact one of the member insurance companies of the Council for Disability Awareness.

7 Relative Costs of Different Employee Benefits

8 Sources 1. Employee Benefits Research Institute, EBRI Notes, December MetLife, 12 th Annual Employee Benefits Study, SHRM and Mass Mutual, Employer Perspectives on Disability Benefits, Prudential, 8 th Annual Study of Employee Benefits, SHRM Survey on Financial Wellness and Education, The Guardian Third Annual Workplace Benefits Study, Integrated Benefits Institute, Poor Health Costs U.S. Economy $576 Billion, October SHRM Foundation, Retaining Talent, U.S. Federal Reserve, Report on the Economic Well-Being of U.S. Households, May Kaiser Family Foundation, Employer Health Benefits Survey, Unum / Consumer Federation of America, Employee Knowledge and Attitudes About Employer-Provided Disability Insurance, PWC Employee Financial Wellness Survey, U.S. Federal Reserve, Survey of Consumer Finances, U.S. Census Bureau, American Housing Survey, MetLife, 14 th Annual Employee Benefits Study, Unum, Employer-Sponsored Disability Insurance: The Beneficiary s Perspective, Council for Disability Awareness, America s Income Protection Picture, LIMRA, The Facts of Life, U.S. Dept of Labor, Paid Family and Medical Leave Factsheet, June U.S. Dept of Labor, Bureau of Labor Statistics, Employee Benefits Survey, March Employee Benefits Research Institute, Health & Voluntary Workplace Benefits Survey, 2015 The Council for Disability Awareness 477 Congress St, 5 th Floor, Portland, ME