Customizing Disability and Life Insurance Plans: Higher Value for Better Outcomes

Customize - Magnifying Glass.On the surface, disability and life insurance policies may seem more or less interchangeable, but a savvy benefits administrator knows how to adjust these products to make them better. When customized appropriately, disability and life insurance products are anything but cookie-cutter.

Designing insurance policies can be compared to choosing options for a new car. The display model on the showroom floor is just a starting point. To select options, a buyer considers what they need and how much they are willing to pay. An option important for one buyer may be irrelevant to another — for example, a buyer in a tropical climate won’t pay for heated seats, but those same heated seats are vitally important for someone living where temperatures routinely dip below zero. Conceptually, this is similar to selecting benefits.

Let’s examine plan options for maternity leave, a common condition covered by short term disability (STD) plans. When an employer has many female employees of childbearing age, we look at how pregnancy leave will work for them in conjunction with an employer’s sick leave policy. STD plans usually offer a 7- or 14-day elimination period before an employee is eligible for benefits; however, a 14-day waiting period might compel employees to use all or most of their accrued paid time. A company with many young women may opt for a 7-day elimination period that allows employees to save some of their accrued paid time for future use. An employer whose workplace is dominated by young and middle-aged men would have different priorities to reflect the differing needs of that particular population. Another example would be production employees who typically have a high utilization of STD. In our experience, employers often prefer a 14-day elimination period, forcing the use of accrued paid time which often covers the need for medical absence without an STD claim ever being filed.

Companies find customizing policies challenging because there are so many choices. For disability insurance, there are basic adjustments to length of leave and monthly income caps based on an employer’s demographics. Long term disability plans sometimes offer own occupation protection, including specialty definitions for high earning individuals like physicians and attorneys. Another enhancement used primarily for highly compensated individuals is a Cost of Living Benefit (COLA), which allows a disability benefit to grow over time.

When we explore options for life insurance, we provide guidance to employers on the recommended levels of coverage, factoring in the overall income range of its employees. Often, we see plans that offer richer benefits to executives and the highly compensated, while office and production staff have a more modest life benefit. Most group life plans include accidental death and dismemberment protection, accelerated death benefits and allow for conversion upon termination or retirement. Each benefit enhancement has its place and associated cost therefore; it takes advisors with specialized knowledge to help employers make the best decisions for their clients.

The experienced consultants at Creative Benefits will lay out the options and outline their potential effect on employees. For example, all group long term disability (LTD) plans have pre-existing condition clauses, which means newly eligible employees could be denied benefits. Let’s say an employee has a heart attack and files a disability claim only to be advised that coverage has been denied. When the individual learns they are being rejected for having a pre-existing condition, they will say “But a heart attack is not a pre-existing condition, I’ve never had a heart attack before.” What this individual may not understand is this: if they have been taking medication for high blood pressure, they are considered to have a pre-existing condition, which could potentially lead to a heart attack. When Creative Benefits makes plan recommendations, we make a point of conducting an open discussion about pre-existing clauses and any other provisions that may affect benefit eligibility.

Many employers want to offer a well-rounded benefits package but can’t quite understand how to make that happen within their budget. We often hear “Find me a way to do this.” Since Creative Benefits is on the front line, we can research more cost-effective options or introduce voluntary disability and life insurance options that are funded through payroll deduction.  Studies have shown that when employers offer benefits through payroll deduction, employees still perceive these programs as beneficial.

Overall, every company is different. There is no one-size-fits-all solution and at the end of the day, our ultimate goal is to optimize benefits and squeeze the most value out of the investments employers and employees make in their benefits programs, whatever they purchase. By delegating the process to Creative Benefits, companies get a good deal for their employees and human resources professionals are free to focus on other challenges.

About the author: Pamela Rauch is FMLA Director with Creative Benefits, Inc. She has been with the company for more than 17 years. She ensures that the service commitment between employers and their employees is met with knowledge, expertise, and compassion.