By: David Murdock, Life Insurance, Healthcare and Group Benefits Risk Consultant at The Prewitt Group
Short-term disability (STD) insurance is an insurance product that replaces a portion of an employee’s income for a short period of time, usually 3 to 6 months, when they experience an unexpected (or expected) medical condition that prevents them from working.
Essentially, if an employee uses all his/her sick and/or vacation days, the STD plan is there to provide economic support in a time of uncertainty. Pregnancy and maternity leave, back injuries and joint disorders and behavioral issues are the most common causes of short-term disability. STD plans are designed to only replace a portion (up to 67 percent) of an employee’s income, which encourages them to return to work to earn 100 percent of their income.
While this product clearly benefits employees in times of need, having an STD policy in place is also a big benefit for employers. Why? Most importantly, employer-paid STD prevents employers from having to make difficult decisions about employees who can’t perform their job due to unforeseen illnesses or injuries. Having a comprehensive STD plan enables employers to adopt a sick-pay policy that applies equally to all employees. For many employer groups, a disabled employee may cause you to pay someone to not be there while having to hire another employee to do their job. Fortunately, an STD policy mitigates that risk.
STD plans can be employer-paid or voluntary. In an employer-paid plan, all employees are covered equally with the same plan design and cost-per-volume of covered payroll. However, like any disability plan, the cost for each employee will vary according to his/her earnings. The higher the income of an employee, the higher the premium. Shorter waiting periods (how long the employee must be disabled before the benefit kicks in) and larger weekly benefits also affect the premium cost.
From an overall cost perspective, an employer-paid plan provides some pricing advantages that voluntary plans do not. For instance, a voluntary STD plan may have age-banded rates, which places a burden on older employees. On the other hand, voluntary plans do offer more flexible plan design in terms of the amount of benefit, duration of benefit and waiting periods.
All in all, STD plans are a win-win solution for both employees and employers. If you’re interested in learning more about short-term disability plans, contact me today!