With the increasingly high profile of LTD benefits among employers, organizations that provide services such as on-site nursing support, management software for the tracking of claims, and access to preferred provider networks are being readily established. These health management organizations approach employers directly to market their services emphasizing the potential for reducing the employer's costs for LTD benefit plans.

 

 

In the 1970's and early 1980's, insurance companies did not wish to become involved in an LTD claim until approximately 30 to 60 days prior to the commencement of benefit payments. Since most LTD benefits plans had a four-month qualifying period, this meant that the disabled individual would typically be off work for 60 to 90 days before being approached by the insurance company to determine potential for rehabilitation and, where appropriate, vocational assessment and/or retraining. Insurance companies felt then that it was an unnecessary expense to become involved in the claim during the short-term period.

 

Through reviews of actual claims experience, insurance companies now understand the importance of "early intervention". Insurers recognize that the longer an individual is on claim, the more difficult it is to return the individual to active employment. Early intervention assessments normally begin to take place withing the first month of absence from the workplace. Further, an effective disability management plan will track trends in absenteeism and red flag instances where an individual has been off a number of times during a fixed period.

 

An employer may introduce the insurance company to the employee early, so that the employer may take an arm's length approach to adjudicating the claim. The insurance company's involvement will remove the employee's impression that the employer makes the decision on claims payment. Additionally, the insurance company has the resources for rehabilitive assistance and medical intervention that will help in the management of the claim.

 

 

Disability management programs also attempt to deal with disability problems by anticipating negative outcomes and delivering solutions that are both preventative and reactive to the disabilities that invariable occur. Employers can choose from either a single disability management source or may select a variety of providers for the numerous disability management subsets.

 

Lifestyle issues have always been an important element in prevention, but are becoming more important as the workforce ages. Disability management programs encourage employees to lead a healthy lifestyle, to excercise in moderation, and to be aware of the potential effects of being overweight, or smoking, or using alchohol to excess, and or poor sleep and exercise habits. Programs typically feature health education seminars and disease management programs such as blood pressure testing and weight loss clinics.

 

Employee Assistance Programs (EAP) is another part of promoting a healthy workforce in the context of disability management. The maintenance of confidentiality provides employees with a level of comfort that encourages them to seek assistance from EAP counselors. Absenteeism controls are an important element of disability management as well. Most lengthy disabilities occur as a result of medical problems that develop and grow over a period of time. Often, a change in attendance patterns can be viewed as a barometer for larger medical problems down the road.

Rehabilitation

 

Early intervention in the claim typically identifies the nature of the disability, the possibility of the disability becoming long term, and the potential to rehabilitate the disabled employee either into modified duties or back to their original job. Rehabilitation, in the context of group disability coverage is defined as the efforts undertaken on behalf of a disabled employee to assist the employee in returning to some form of gainful work.

With the rapid increase in claims expenses in the 1980's, many insurance carriers sought assistance from specialty providers in the private sector to assist them in rehabilitation initiatives. This was another reason for the increase in rehabilitation providers. The scope and range of services available from insurance companies and from third party rehabilitation providers vary in quality and cost. An effective rehabilitation approach must include the following services:

The most common approach taken during the rehabilitation process is to focus on returning disabled employees to their regular occupation. This may require the employer to either make temporary or permanent modifications to an employee's work environment or job duties. In some instances, especially with smaller employers, the volume of work may not make it economically viable to provide alternative jobs to an employee on a permanent basis. For these employers, the insurance company should also include vocational assessment in the rehabilitation study to determine the individual's potential for retraining into another occupation.

 

Effective rehabilitation includes communicating with all key stakeholders including the disabled employee's attending physician in order to ensure a complete understanding of the employee's job duties and the availability of modified working arrangements. This will provide the attending physician with information to better determine the individual's medical ability to return to his/her own job or to support the rehabilitation plan for modified duties.

 

nce the disabled employee has been returned to the workplace, the rehabilitation counseling may continue to ensure successful achievement of the predetermined goals. By properly communicating the nature of the return to work and what is required of the employer, the employee, and the treatment team, the rehabilitation consultant can help establish an environment that will support the employee's successful return to work.

Long term disability (LTD) benefits typically contain the following characteristics:

LTD benefit costs are driven by the industry, the volume of insurance, the qualifying period and the definition of disability.

 

 

Both short term disability and long term disability plans have a qualifying period (also called a waiting period or elimination period). 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.

The qualifying period for LTD usually complements the benefit period of the salary continuance or STD program. Qualifying periods for LTD usually range from four months (equivalent to the duration of EI) to 52 weeks. More recently insurance companies and health management companies have been involved in early intervention sometimes getting involved in a claim in the first few days of absence. Early intervention often results in reducing the amount of STD claims that become LTD claims.

 

 

There are two different definitions of disability (the specific wording is provided below):

Typically, insurance contracts stipulate the "own occupation" definition for the first 24 months of disability and then the "any occupation" definition thereafter.

 

 

 

The amount of the long term disability benefit is linked directly to the employee's pre-disability earnings. Depending upon the tax status of the benefit, these will either be gross (pre-tax) or net (after-tax). Remember, taxability is dependent on who pays the premium (if the employee pays then the benefit is tax free; if the employer pays then the benefit is taxable)

Gross earnings are defined as regular earnings and can include bonuses, commissions, and overtime pay depending on the benefits plan. If bonuses, commissions or overtime pay are included in the benefit, the insurance carrier will typically take average earnings over two years to calculate the benefit amount.

Net earnings are defined as gross earnings less income tax deductible.

 

Insurance companies assist individuals in returning to the workplace, and therefore, most LTD plan include a provision for tracking recurrent disability. This provision in the insurance contract takes into consideration an individuals who tries to return to work but who, due to a recurrence of the disability, cannot function in their regular job. In this case there are two situations in which the insurance carrier will waive the recommencement of the qualifying period:

 

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 would be entitled to a amount higher than the non-evidence maximum (because of earnings or the benefit schedule), then medical evidence would need to be submitted 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.

 

 

Other sources of income payable to the disabled employee are referred to as offsets and are used to reduce benefits payable under the LTD benefits plan. These are direct and indirect and some characteristics of each are outlined below:

 

The all source maximum is included in an LTD benefits plan to account for income from all sources. The purpose of the all source maximum is to prevent situations where an employee's total income while disabled comes to close to his pre-disability income, eliminating the financial incentive to return to work. Under the all source maximum provision, income from all sources (benefit payable, direct offsets, indirect offsets) is added to determine the maximum benefit payout. The all source maximum is based either on gross earnings or net earnings (depending on the taxability of the benefit) and will limit replacement income up to 80% to 85% of pre-disability income.

 

 

A disabled employee may file a claim against a third party for causing them to become totally disabled, to compensate for loss of earnings. In this case, if the employee is awarded compensation, they must return any benefits received under the STD or LTD benefits plan through their employer, up to the amount paid out to them by the insurance company.

 

 

Disability benefits are designed to provide disabled employees with a percentage of pre-disability earnings to enable them to sustain a reasonable standard of living while disabled. For long disabilities (usually past two years), inflationary impacts can diminish the value of the benefit being received by the disabled employee. In order to protect from the erosion of the benefit, group benefits contracts include a cost of living adjustment (COLA), which provides indexing of the disability payment on adjustments in the consumer price index (CPI). The indexing is usually stated to be the change in the CPI but cannot exceed a limit such as 3% or 5%.

 

 

LTD benefits cease on the earliest of the date the employee:

 

Disability benefits continue even if the group insurance contract is terminated by the employer. Once an employee is on STD or LTD, the insurance company is obligated to maintain payment of benefits provided the disabled employee continues to satisfy the terms of eligibility outlined under the definition of disability in the group insurance contract. The only situation where the insurance company is not required to to continue benefits is if the group insurance contract was on an administrative service only (ASO) basis.

 

 

A conversion option is offered by a few insurance companies that allows disabled employees to convert all or a portion of their terminated disability benefit. In order to convert, the employee must:

 

LTD plans include a waiver of premium feature – when the disabled employee is approved for the LTD benefits, the premium for the LTD benefit is waived while the employee is receiving LTD benefits.

 

 

Some LTD benefits plans contain a standard provision for th exclusion or restriction of pre-existing conditions. This provision is designed to protect these plans from a negative cost impact form the high claims that could result when an employee with a pre-existing condition joins the employee benefit plan. They typical pre-existing condition limitation is:

 

The purpose of a disability benefit plan is to provide active employees with financial protection if they become unable to work due to disability. Most plans stipulate exclusions under both STD and LTD coverage, which specify that benefits will not be paid:

 

 

 

 

 

salary continuance plan (also known as a sick leave plan) is used by employers to manage short-term absences from work. As mentioned previously, a salary continuance plan is administered through payroll and there is minimal involvement in adjudicating the claim. The employee usually requires nothing more than a doctor's note to justify the lost time from work.

Salary continuance plans are not as common as they used to be but are still used by many organizations to provide coverage usually to their executives in large firms, or for all of their employees in smaller firms. Smaller firms will more often use salary continuance plans because it is more cost-effective than having an insurance carrier administered program.

Some common ways that employers use their salary continuance plans are outlined below:

Most salary continuance plans link the benefit payable with years of service.

 

 

With the emergence of promoting early intervention in disability claims by qualified adjudicators and rehabilitation consultants, many organizations are amending their disability plans. Many employers are reserving salary continuance for short-term sicknesses only, and in the event of longer term illness or accident, short-term disability plans are used. Short term disability (STD) benefits plans (also known as weekly indemnity or WI for short), can be administered through an insurance company or health management company. By using a third party administrator such as an insurance company or health management company, employers can access additional services and expertise to help them manage, adjudicate and administer the disability claim.

 

STD benefits are structured to begin payment after a specified number of days (known as the qualifying period) usually ranging from 3 to 7 days after the last day worked. For disabilities resulting from an accident or hospitalization, payment typically starts on the first day.

Under an STD plan the definition of an eligible disability is linked to the employee's inability to perform any or all aspects of their occupation.

 

Benefit payments received under an STD plan are taxable except for in the following two situations (according to Canada Revenue Agency):

If the STD benefits plan benefit is equal to or better than the disability benefit provided under the Employment Insurance (EI) system, the employer can register the plan and qualify for a reduced EI premium rate. The steps involved in registering the STD plan are:

 

Today, group life insurance policies have evolved to reflect significant trends and changes in society. In addition to basic life insurance, employers extend some modified form of life insurance coverage to an employee who retires, and a few employers even allow eligible employees suffering from terminal illnesses to collect a portion of the benefit amount while living.

The four most common types of group life insurance products offered by employers include:

This tutorial will walk you through all of the components of the different types of employer-sponsored life insurance benefits including:

Furthermore, general life insurance provisions, for all types of life insurance will be discussed including:

 

Basic life insurance is life insurance coverage that is usually provided and paid for by the employer for all employees. The coverage is provided under the terms of the group insurance contract and is automatically renewed annually. The terms and conditions of coverage are detailed in the group contract which is accepted by the employer as a precedence for the insurance company providing coverage.Basic life insurance plans can be either contributory or non-contributory. Under a non-contributory arrangement, the employer pays the full premium cost for insuring all employees enrolled in the plan. Under a contributory plan, the employee pays part or all of the premium by making contributions deducted through payroll.There is no legal requirement for insurance companies to offer group insurnance to a group of any number of employees, however most insurance companies generally require a minimum of 3 to 10 employees for coverage. This minimum number of plan participants ensures that the insurer's time and effort in setting up the plan is worthwhile and will eventually yield a profit. The larger the plan (more participants), the better spread of risk and the more consistent the average age and health of the group will remain from year to year. This protects the insurer against loss and adverse selection, and also shields the employer from large swings in premium rates from year to year. The larger the group of employees, the less expensive insurance will cost because of economies of scale.

 

 

Generally full-time active employees are eligible for group life insurance coverage, however most insurance contracts stipulate coverage for part-time employees working a minimum of 20 hours per week. Life insurance coverage can also be extended to retirees, however the benefit is usually reduced significantly because of the dimished need for life insurance in the later stages of life. Life coverage for retirees is generally sufficient to cover expenses related to the last illness of the retiree as well as funeral costs. Under a non-contributory plan, insurers generally require that all eligible employees be enrolled in the basic group benefits plan. The requirement under a contributory plan is that 75% of eligible employees must be covered.

 

 

An actively at work provision is included in most group insurance contracts. This requirement stipulates that coverage will be effective for an employee provided he/she is not absent from work due to sickness, injury, or other reasons on the date that coverage begins.

Once coverage is in effect it continues for as long as the employee is working for the employer and as long as required premium contributions are made. If employment is terminated, the employee has 31 days to convert their group coverage into an individual policy. This provides the terminated employee reasonable time to replace the group coverage that they had in effect while employed.

 

 

There are different benefit calculations that can be chosen by the employer that will determine the amount of coverage for employees. Employees are assigned to different classes under the group insurance contract. The schedule of benefits assigned to each class determines the amount of life insurance that will be provided to the members of each class. Since benefit schedules under a group contract are subject to human rights legislation, class descriptions must be broad. There are four types of benefits schedules: earnings, flat, length of service or a combination.

 

The maximum amount of insurance reflects the number of employees covered by a group contract and the average benefit amount per employee. Limits are also placed on the benefit amount that high-earning employees can receive in order to avoid adverse selection from the wide divergence of coverage levels within a group.
 

 

Most group contracts do not require any evidence of insurability from the individual plan members. However, there are certain situations when an eligible employee must provide such evidence:

 

To address the higher cost of providing life insurance benefits coverage to older employees, a common specification in schedules of insurance benefits require a reduction in the benefit amount. Reduction provisions typically apply at the earliest of retirement or age 65. Benefit reductions can be implemented in different ways:

 

Basic life insurance plans provide insurance to an individual at a far lower cost than the individual insurance marketplace. Insurance companies can do this because the risk that they take on is spread throughout the whole group and can be more attributable to actuarial mortality tables. The premium rate for basic life insurance is expressed as an average rate per $1,000 of coverage for the entire group of employees. The employer is responsible for submitting the total amount of the premium payments for the entire group of employees monthly to the insurance company. The rate is set at the beginning of the plan year and is garaunteed for the renewal term. At each subsequent renewal, a rate adjustment may be required to reflect changes in the demographic composition of the group as well as changes in claims experience.

 

 

Employers usually offer employees the ability to increase their group life insurance coverage by purchasing optional life insurance as an addition to basic life insurance. Insurers require minimum participation in the plan (usually minimum of 10% of the covered group). Optional life insurance is covered under the same provisions as the basic life coverage except:

 

Underwriting requirements for optional life insurance are more restrictive than those for the basic life insurance benefit because adverse selection will arise once employees are allowed to select their benefit amount. This is the reason that evidence of insurability is required for the optional life benefit. Generally, an employee must be a member of an optional life plan for a minimum of two years before the insurer will pay the insurance benefit if death is a result of a suicide. Otherwise, the insurer will refund the premium paid.

 

 

To be eligible for optional life coverage, an employee must also be enrolled in the basic life insurance coverage. The benefit amount is generally based on an aearnings schedule of insurance benefits, experessed as a mulstiple of salary. Alternatively, it may be in units such as $10,000 or $25,000, up to a benefit maximum. Basic and optional life insurance maximums are usually combined to an overall maximum depending on the size of the plan.

 

 

As with basic life insurance, the monthly premium rate is expressed per $1,000 of insurance. Most insurance companies offer optional life insurance as standard rates that they have developed and applied across all employers. Rates are typically age-banded and divided by gender and smoker/non-smoker status.

 

 

Basic life insurance plans often allow for coverage of the dependents of insured employees, usually as optional coverage that is fully paid for by the employee. In this case, however, only the employee can generally be named as the beneficiary since this benefit is made available by employers as a means of assisting an employee to pay for funeral, burial, or cremation expenses on a dependent's death.

 

Dependents are defined (by most insurers) as:

At the inception of a plan or at the time dependents woul have become eligible, dependents, excluding newborns, are not eligible for coverage if they are confined in a hospital. Coverage, begins when the the dependent is released from the hospital. This provision is similar to the actively at work provision pertaining to employees and is commonly referred to as the non-confinement rule.

 

 

The benefit amount is generally a modest flat dollar amount, such as $10,000 on the spouse and $5,000 on each child. But the level of coverage can vary depending on the benefit schedule provided by the employer.

 

 

Since the benefit amount is small, coverage is available at a relatively low additional premium rate.

 

 

With an aging population and a wave of baby boomers on the verge of retiring in the coming years, post-retirement benefits, including post-retirement life insurance, are receiving considerable attention from employers.

 

Group life insurance, historically, usually ended upon retirement which left many retired employees without coverage since the cost of individual life insurance was so high given the employee's age and reduced income.  Employers then started providing life insurance plans that covered employees into retirement, however coverage was minimal compared to that provided to active employees.

 

Some of the issues with providing post-retirement life insurance coverage is that the present value of the cost is dramatically higher than the same coverage for active employees, given reasonable interest assumptions. The mortality rate for a retired employee is higher than the average employee in the group, and also higher than an employee who is the same age as the retired individual yet actively working. Retiree life insurance programs have coverage for life and there is no uncertainty of paying a death benefit.

 

 

There are three approaches to determining an appropriate benefit amount for retiree life insurance coverage:

 

There are four general options to pay for the cost of retiree life insurance coverage:

 

 

 

This provision allows an insured employee to designate the beneficiary who will receive the death benefit when a claim is made on the death of the insured employee. The employee is allowed to change the beneficiary at any time, except in rare sitiuations where the beneficiary designation is made irrevocable, unless explicitly stated otherwise.

 

 

A provision that allows for a portion of the death benefit to be paid to an individual who is not specifically designated as the beneficiary. This provision normally pays out a dollar amount stipulated in the group contract to an individual who is responsible for paying funeral costs and/or other associated costs associated with the illness or death of the employee.

 

A facility of payment provision also applies to a situation in which the beneficiary is a minor or is mentally or physically incapable of settling the claim of a death benefit. With this provision, the insurer can implement a temporary payment arrangement until the beneficiary's legal guardian steps forward to make a claim.

 

 

Group life insurance contracts generally stipulate that the death benefit is payable in a lump sum, unless an alternative method is chosen. An employee can at any time change the benefit settlement option he/she chose if other options are available. Other options in settling the group life insurance claim are:

 

With the increase in degenerative diseases, providing living benefits has become increasinly important. With living benefits, individuals can cash in a portion of the face value of the life insurance benefit amount while still living if the individual:

Living benefits are not provided within the group insurance contract, however, are provided on a case by case basis by the insurer.

 

 

The waiver of premium provision in life insurance coverage is a common approach to continue life insurance coverage a disabled employee. Under this provision, coverage may continue for a disabled employee up to the period of time stipulated in the group contract, while the insurer waives the premiums required. In fact, the premium is waived and coverage is continued even when the group contract with the insurer is terminated by the employer.

 

For the employee to qualify for the waiver provision, the disability must occur before age 65. Also, the employee must be totally disabled, which is normally defined as a complete inability to be gainfully employed in an occupation for which the employee is qualified due to education, training, experience. The most common way to set up the waiver of premium is for the definition of disability to be the same as it is under the long term disability benefit. Therefore, the waiver provision is automatically applied when the long term disability benefit payments are approved.

 

An employee must file a claim within 12 months of their last day at work and must submit evidence of insurability to prove the continuation of their disability. When the employee recovers and returns to work, premiums under the group life insurance benefit are reinstated so coverage can continue.

 

 

Most group insurance contracts continue coverage during certain situations in which the service of an active employee is temporarily interupted (laid off, strike, leave of absence, etc.). The coverage will be equal to what is provided to an active employee. The duration of coverage usually extends from one to three months after the last day the employee was at work.

 

 

Insurance companies may terminate a basic life insurance contract if premiums are not paid (usually after a 31 day grace period). Under certain conditions the insurance company may also terminate the group insurance contract if the employer fails to maintain minimum participation requirements under a contributory plan.

 

The employer may terminate the group insurance contract at any time after giving 31 days notice.

 

 

When an employee's group life insurance ceases due to termination of employment, employees have the privilege of converting the face value of their beneifts coverage to an individual life insurance policy. The key highlight of the conversion option is that the same coverage will be provided on an individual basis without evidence of insurability. Conversion must take place within 31 days of termination.

 

 

For optional life insurance (usually coverage is based on smoker/non-smoker status), the age of the employee must be kept on file to determine the level of coverage for that employee. If there is a misstatement of age, the employee's coverage will be adjusted to correspond to the benefit amount ffor the actual age. The premium will also be adjusted accordingly. Some insurance contracts stipulate that the benefit amount available payable should correspond to the premiums being paid. Other insurance carriers will refuse the benefit payment and simply refund premiums.

 

 

Insurance will not be paid if it was obtained with the intention of murdering the insured person. If the insurance policy was not obtained with the intention of murdering the insured, the benefit payment will go to the insured person's estate rather than the person who murdered the insured.