Disability Coverage: More Important Than You (or Your Employees) Think

So what is DIAM?

It stands for Disability Insurance Awareness Month, sponsored by the Life and Health Insurance Foundation for Education (LIFE). Many employees are unaware of the disability coverage that may be available to them as an employer-sponsored benefit, so spread the word this month about your workplace disability insurance.

Even though you may offer this coverage to your employees as an employer-paid benefit, it is important to educate your workforce that the coverage also includes time off due to an illness or an injury that happens off the job. According to the National Safety Council, 73 percent of disabling accidents and illnesses aren’t work-related.

Why disability coverage is important

But many employees could be under the impression that the disability must be work-related to be able to submit a claim. Whether you focus on disability coverage as a single topic or include it as part of an overall review of your benefit package, take the next few weeks to highlight your company’s short and/or long-term disability policy.

The typical group disability policy only replaces 60 percent of income, but for higher income employees that amount could be capped by a maximum monthly payout (for example $10,000 per month). Employees should know that if the policy is paid for by the company, the benefit would be considered taxable income. However, if the employee pays the premium for the group coverage or buys a plan on the individual market, the benefit would not be taxable.

Although a disability policy isn’t meant to replace 100 percent of an employee’s income, it will at least provide the disabled worker with a source of replacement income to help make ends meet until they’re able to return to work to avoid a financial hardship situation. A LIFE Foundation study found that 70 percent of working Americans couldn’t make it one month before financial difficulties would set in. More than one in four Americans wouldn’t make it a week.

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More common than you think

Most of us think a disability will never happen to us, but nearly one in three women can expect to suffer a disability that keeps them out of work for 90 days or longer at some point during their working years. For men, the odds are about one in four. And one worker in seven can expect to be disabled for five or more years before retirement. These statistics are alarming, but sometimes it takes this type of shock value to raise the awareness of your employees to one of the biggest risks to their financial security.

Disability Insurance Awareness Month is actually a part of an overall campaign that is sponsored by Employee Benefit Research Institute (EBRI), the Save for Your Future Campaign, because financial education should be an ongoing campaign, not a one time event.

This was originally published on the Financial Finesse blog  for Workplace Financial Planning and Education.

Linda Robertson is an experienced financial planner with FinancialFinesse.com, the nation’s leading provider of unbiased financial education programs to corporations, credit unions and municipalities with over 400 clients across the country. Her focus is on retirement and tax planning, and her background includes positions with NationsBank, H & R Block, and Metropolitan Life. Contact her at linda.robertson@financialfinesse.com .