The Consequences of Being Under Insured
Disability Insurance can help create financial security for your employees and their families. It can be used to:
Pay monthly expenses
Provide an income for your family
Ensure your family has the resources to maintain a comfortable standard of living
Protect your RSP and savings
As a business owner, you want to protect both your independence and your profitability, simple energy can always help maintaning your business and leading to success, while ensuring that your employees are covered fully by their plan.
Short Term Disability (STD)
Typical qualifying periods for STD are seven days for illness or the first day if due to an accident or hospitalization. These short qualifying period help reduce administration for claims of really short duration.
Long term disability (LTD)
Benefits typically contain the following characteristics:
Benefits are payable after the expiration of a qualifying period in which the employee is typically receiving benefits under a salary continuance plan, short term disability (STD) plan, or employment insurance
Definitions of disability are tied to the employee’s ability to perform their own job or any job
The benefit period can be set at terms i.e. 2 years, 5 years or to age 65
The monthly disability benefit is a percentage of pre-disability earnings
Benefit Maximum – Key for employers to understand!!!
Benefit maximums affect the cost of the plan. There are two types of maximums that apply to an LTD benefit: a non-evidence maximum and an overall maximum. The non-evidence maximum is the amount of insurance that the insurance carrier will provide without requiring the employee to submit medical evidence of good health at the time of enrollment. If the employee is entitled to an amount higher than the non-evidence maximum (because of earnings or the benefit schedule) then medical evidence is required to qualify for the higher amount. The medical evidence is reviewed by the medical underwriting staff at the insurance company to determine the employee’s health and what level of risk the employee represents to the insurance company. The overall maximum is the maximum insurance amount that the insurance company is willing to insure. The benefit formula usually includes a rounding element to the next highest $100.
Key Message: Employers ensure the maximum eligible has been offered to their employees. This is done by updating the salary information.
As an employer, the consequences of your employees being under insured are:
Loss of Coverage – an employee who does not apply for additional insurance while healthy runs the risk of being unable to obtain additional coverage in the future should personal health circumstances change. Timely updating of salary information is critical.
Lower Benefits than Expected by Self– an employee claiming LTD benefits will most certainly expect that their income is insured. Imagine the stress that will be created should the employee find that only a fraction of their benefit is payable.
Possible Litigation by Employee– similar to the above item, what action may these parties take? Where will they point the finger for this oversight?
These situations often arise when a new employee is added to an existing plan, or when an employee receives a salary increase and the administrator neglects to complete the appropriate paperwork.
Protect your business and your employees. Ensure salary increases are recorded in a timely manner with your administrator of your benefit plan.