Who will pay the premiums for the insurance?

• 100% employer paid
• 100% employee paid (voluntary)
• Payroll deduction (shared cost)

What type of disability insurance will be used?

• All individual plans
• Group long term disability
• Combination of both

Who will be covered?

• All employees
• Specific classes of employees
• Just key employees
• Select Individual Employees (Discrimination Allowed)

Who Pays?

There are several things to consider when deciding the answer to this question. If the plan will be 100% employer paid then your corporation will receive the best possible offer from the insurance company. If your corporation is over 35 people, it is very possible that everybody can get coverage on a guaranteed issue basis. This is vital to get people coverage who may have health problems which would normally preclude them from the insurance. A voluntary plan obviously transfers the costs of the insurance away from the corporation to the employees, but it will also increase the risk of anti-selection to the insurance company. Therefore each policy will be underwritten, and anybody who is deemed to be an adverse risk will probably not get coverage. A payroll deduction plan can be a nice mix of the two, more people sign up for the coverage, thus decreasing the risk of anti-selection to the insurance company, and increasing the underwriting offer to your company.

What Type of Coverage?

There are basically two types of disability insurance coverage available. Group long-term disability insurance is inexpensive when compared to individual policies, however like anything else in life, you get what you paid for. Group policies tend to have strict definitions, and pay in fewer actual claims scenarios. Individual policies will have rate guarantees to age 65, more liberal definitions, and pay more money in more claims scenarios. For corporations that have the budget available, you cannot go wrong in buying individual policies for everybody. You would be providing your employees with the best possible coverage in case of an accident or injury. If money is a large factor in your decision, as it is in most cases, then group LTD may be the route to go. One of the more common scenarios is a blend of the two. The company purchases group LTD for all employees up to a certain level, and supplements this plan with individual coverage for their key employees.

Qualified Sick Pay Planning

For the corporation that has the money to self-insure against disabilities, it is a requirement to have an established qualified sick pay plan. There are several Internal Revenue Codes one must adhere to when going this route, and some serious financial assessment needs to take place even before the decision is final to self-insure against disabilities. FASB 112, a change in the general accepted rules of accounting, requires companies to list the present and future values of any disability claims as a liability. For a publicly traded company this can generally cause serious harm. Think about the present and future value of a disability claim on a man who is 35 years old, and has been insured by your company for $5,000 a month. If you pay him benefits to age 65, every month, this claim could be in the millions. Many larger corporations have decided to transfer this risk to the insurance company in recent years. Feel free to contact us to discuss any QSPP's, and self funded disability plans.