05.15.2024

A Deep Dive into Group Long-Term Disability Insurance

Robert Crowder, founder and President of The Benefits Trust, has over 30 years of experience serving pension and employee benefits clients. In 1994, he founded The Benefits Trust as a Third Party Administrator serving small and mid-sized business across Canada. Through Rob Crowder's dedication and leadership, The Benefits Trust has grown into the successful benefits provider that it is today.

A Deep Dive into Group Long-Term Disability Insurance

Group Long-Term Disability (LTD) insurance is a bit of a behemoth in the group benefits world. It holds tremendous value, introduces a level of risk, and comes with layers of complicated details. Understanding the complexities and knowing how to sell group LTD effectively is a great asset for employee benefits advisors looking to stand out from the crowd.

Explaining Group LTD Insurance

To put it in simple terms, group LTD insurance is a valuable safety net that replaces a portion of an individual’s income if they’re unable to work due to injury or illness.

Although it sounds simple, it prompts some questions. Who is the plan for, and what is its true purpose? Is it primarily aimed at providing financial security to employees and their families, or is it more about reducing employer liability? How large of a portion is covered, and what constitutes “income?”

When speaking to clients, be sure to use understandable language and put things in terms they can understand – cut it out with the insurance jargon and endless acronyms! It can be helpful to calculate the potential payout over time of a particular plan to help clients grasp the significance and implications of the insurance. With this, you can design an effective plan and enable your clients to make informed decisions about their coverage.

Designing the Right Plan

Once you and your client understand the fundamentals of group LTD, your focus should shift to creating a plan that suits the unique needs of the employer and its employees.

In order to do so, you need to understand those needs. Ask future-based questions and get your client thinking. What happens if one of their employees can’t come to work tomorrow because they’re sick or injured? What if it’s a key employee? How long do you want to continue paying them if their productivity is 0?

Then, it’s time for the specifics.

Taxable vs. Non-Taxable Benefits

A crucial consideration is whether these LTD benefits will be taxable or non-taxable.

With taxable benefits, the employer pays some of the premium and the employee receives taxable benefits at the time of claim. With non-taxable benefits, the employee pays 100% of the premium, and when claimed, the benefits are tax-free.

There’s no clear answer to which is better – it comes down to context and preferences. Taxable benefits, for instance, often yield less employee pushback for the employer due to the lack of a payroll deduction. Advisors must navigate these considerations to ensure that the chosen plan aligns with the financial goals and preferences of all parties involved.

Creative Plan Design

Creative plan design is essential in tailoring group LTD to specific circumstances.

Waiting periods, for example, can be adjusted to balance risk and cost. A longer waiting period means lower premiums, but it also delays benefits. Combining a shorter Short-Term Disability (STD) program with a longer LTD program can be a cost-effective strategy.

Customizing plans to fit the employer’s philosophy and needs is also essential in creating value as an advisor. Some may opt for a more comprehensive plan that covers employees until retirement, while others may prefer a shorter coverage period to reduce costs. Specialty products, such as those designed for high-risk industries, offer tailored coverage for specific risks, allowing advisors to offer solutions that best fit the employer’s needs.

Considering Offsets

Offsets refer to the deduction of other benefits from the total group LTD payout, impacting the actual amount received by the claimant. This can include benefits such as Canada Pension Plan Disability (CPP-D), workers’ compensation, or payments from motor vehicle accident (MVA) claims.

Explaining the concept of offsets helps clients understand the potential limitations of their coverage and why it’s essential to have a comprehensive plan that considers all sources of income during disability.

Zero Sum Offset

Zero-sum offset is a scenario where the total of other benefits received equals or exceeds the LTD benefit, resulting in no payout from the LTD policy. While this might seem discouraging, it’s crucial for employees to still apply for LTD coverage. Other benefits may eventually run out, leaving them without financial support.

It’s the responsibility of the advisor to educate clients on the importance of applying for LTD within the specified timeframe, especially considering the 90-day window after disability.

Special Considerations

Pre-existing conditions and the definition of earnings are other important factors to consider.

Advisors should clarify whether pre-existing conditions are covered and ensure that the definition of earnings accurately reflects how income is calculated for employees. For instance, does “income” include commissions and bonuses? These details need to be ironed out from the beginning and understood by all parties.

Navigating these complexities requires careful consideration and attention to detail on the part of the advisor.

Selling Group LTD Insurance with Success

Understanding and simplifying the complicated world of group LTD is the core of successful selling in this industry. Statistics show that one in three people will become disabled for longer than 90 days before they reach the age of 65, and a large portion of the population is unprepared to handle long-term disability.

It’s easy for people to adopt the “but I won’t ever be disabled” mentality, but the numbers tell a different story. Adequately informing clients on the reality of long-term disability and their coverage options is important in helping the client build a comprehensive benefits plan that serves the employer and employees alike.

With over 30 years of experience in the employee benefits industry, The Benefits Trust is your go-to source for advisor resources and information. To better understand group LTD benefits, its complexities, and how to sell with success, contact us today!

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