Disability Insurance Delivers Three Way Win
by Paul Wickline

Last year, more than 80% of U.S. workers surveyed by the Consumer Federation of America said they were significantly underinsured for a long-term disability.
Let’s look at some financial realities--mounting credit card debt, a negative savings rate, rising personal bankruptcies, and a stagnant economy and wages. The temporary loss of income because of illness or injury could be devastating. The National Assn. of Insurance Commissioner’s (NAIC) disability tables reveal that a 35-year old male worker faces a one in five risk of being hit with a disabling illness or injury that prevents him from working for three months or more during his career. For women, the risk is greater than one in four.
While having adequate disability coverage is more important than ever, the Bureau of Labor Statistics notes that only a third of today’s workers have long-term disability coverage at work.
Employers face their own pressures including escalating healthcare costs; the challenge of attracting and retaining workers in a highly competitive labor market; and a growing array of ancillary benefits available for consideration. The best benefit to meet all needs may be multi-life voluntary or supplemental disability insurance introduced through an effective communications program.
Employees are being encouraged to protect their earnings and assets during their working years and beyond. The transition to employee-driven coverage began with the shift from defined benefit retirement plans of yesteryear to the defined contribution plans we see today, which are predominantly 401(k)s. However, more than 80% of employees surveyed do not know the scope or cost of their benefits, making it difficult for them to fill the gaps in coverage and plan for the unexpected, according to LIMRA.
A third of today’s employers provide a base disability program. A base long-term disability plan usually covers only 60% of an employee’s salary, which may be a shock to many workers who have the common misperception that they are covered 100% under their employer plan.
Aside from this misperception, even 60% coverage can create a large gap in coverage – particularly for higher-paid professionals. Executives at middle-income level and above are at particular risk of underinsurance due to benefit caps, taxation of employer-provided long-term disability benefits, variable compensation issues, and lost retirement savings.
Executives need to understand that bonus and incentive compensation is not normally protected by group long-term disability and neither are the employer’s contributions to a retirement plan. The benefit from an individual income protection supplement can help to fill the gaps. You have the opportunity to show potential customers that individual supplemental insurance will cover income over and above long-term disability benefit caps.
These supplemental disability products offer the additional benefit of portability. The portability feature is increasingly important since the average U.S. employee switches jobs 14.2 times throughout their career, according to the Bureau of Labor Statistics. More than half of U.S. employers offer voluntary benefits and these benefits are just one tool to help retain employees by meeting their diverse benefit needs, according to LIMRA’s “The Voluntary Benefits Report Card.”
When deciding whether to offer voluntary disability benefits, employers will take into account the added advantages of guaranteed issue, substantial rate discounts, and higher coverage limits. The employer should also consider how voluntary enrollment could improve benefits communication. Employees’ satisfaction over their benefits is twice as high at companies that communicate the value of their benefit package effectively, according to Watson-Wyatt research from 2005.
Employees need to get a better understanding of how to fill the gaps in their coverage. Unfortunately, employees have limited exposure until the need to go out on claim. Then they realize what they don’t have. As workers stay employed longer into the traditional retirement years, they need to learn about new strategies to plan for protecting their assets and income. Employees have a greater commitment to employers that offer the proper education with the proper benefits.
Carriers have recently invested heavily in efforts to communicate through the employers about their benefits, supplemental options, and individual exposures. For instance, the following options are available:
• Pre-enrollment communication materials.
• Personalized enrollment paper kits with pre-filled applications.
• Internet information sites.
• Call center support and enrollment.
• Web data exchange sessions.
• Group employee meetings.
• Online enrollment.
• Face-to-face counseling sessions.
With comprehensive communication strat-egies, the broker, employees, and employer can enjoy the following benefits:
• Increased participation through proper timing and positioning.
• Professional enrollment services and tools.
• Real-time participation results.
• Education about existing long-term disability plan and the supplemental individual offering.
• Raised awareness of potential coverage gaps.
• Ability to make more informed decisions.
• Increased employee satisfaction.
By offering voluntary disability insurance, advisors can help their corporate clients address many of the issues facing employers today. For example, it can be cost-effective to offer multi-life voluntary disability to small employers that are unable to fund a group long-term disability plan.
Even larger employers that provide group coverage can benefit from offering voluntary disability insurance. Employers whose long-term disability rates are increasing because of claims experience can consider shifting a portion of employee disability coverage to voluntary policies to help stabilize group rates. Benefit claims from today’s older workers are often due to chronic illnesses, such as diabetes, obesity, and autoimmune diseases, cancer, heart conditions, and back problems. Also, claims durations are longer.
With these voluntary products, employers can provide a better benefit experience to their employees. Brokers and employers can educate employees about the foundation of their coverage and identify ways to enhance protection. The broker can also help the employer improve recruitment and retention by providing valuable benefits to employees. Offering these benefits further insulates the broker’s relationship with the client and provides a substantial increase in revenue due to first year and renewal commission schedules.
Employers face all sorts of challenges, making it difficult, but not impossible, to provide comprehensive benefits packages to employees. More and more employers are able to provide education and enrollment of products, such as voluntary disability. Such events help employees understand their options to plan for their financial wellbeing.
Offering voluntary disability is a three-way win: It helps employees understand the importance of their benefits choices; it allows employers the flexibility to offer valuable benefits to meet employee needs; and it strengthens a broker’s relationship with the employer, which leads to a hefty return on investment for the both in the long term.
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Paul Wickline is a senior account executive for Unum. He is based in Walnut Creek, Calif., and can be reached atpwickline@unum.com, 925-316-3960.