Long Term Disability Insurance

Have you ever had to decide what to do about an employee with an extended illness who has exhausted all medical, holiday, and personal leave? This can be the most difficult decision an executive or a board ever has to make. Sometimes the decision is made to keep an employee on the payroll indefinitely, but that can be extremely costly for an organization and can set a dangerous precedent that has the potential for abuse. Other times, the employee is put on indefinite unpaid medical leave with the promise of a job when he or she is ready to come back. Another alternative is to terminate the employee.

An employer-paid Long Term Disability (LTD) program can eliminate the need for these difficult decisions. Group LTD plans cover all full time (over 30 hours), permanent employees. These plans are designed to start paying benefits after a minimum required period of disability (the elimination period), commonly either 90 or 180 calendar days, and to pay for a "long term" (either until the employee can return to work or until age 65). LTD plans provide partial salary replacement (usually 60%) during an extended period of disability when the employee cannot work.

An additional employer benefit of a LTD insurance policy is that the insurance company decides whether the employee is entitled to disability payments and the insurance company will make the decision as to the appropriate time for the employee to return to work. By having an independent, objective professional deal with the employee, the nonprofit executive avoids having to make tough decisions regarding the severity of the disability or illness and the employee's ability to do his or her job.

LTD is an important benefit for the employee. The inability to receive a pay check during a disabling illness or injury would surely bankrupt most staff members in a relatively short time.

LTD is an often neglected benefit. In a survey completed in 1994, only 45% of the organizations with staff of 50 or less had LTD plans in force. The smaller the organization, the less likely it was to have a LTD plan. Smaller organizations that have fewer resources are the most vulnerable when an employee has a long-term illness.

For a nonprofit organization with a staff of 10 and an annual payroll of $300,000, the cost of a group long term disability plan with a 90-day elimination would be between $1,500 and $4,500 annually depending on the age of the staff. A 180-day elimination would reduce the premium by 15-20%. The costs of continuing to pay someone's salary for an extended period can rapidly exceed the annual premium for LTD.

The Maryland Nonprofits Employee Benefits Trust has a group long-term disability plan as part of its total benefits package. This benefit is available to groups as small as two. Coverage is provided by Jefferson Pilot. The billing for LTD is combined with the billing for the other parts of the trust. This combined billing reduces the number of checks to be written each month, and allows for the easy allocation of expenses to various funding sources. In addition, by purchasing all benefits from one source, all benefit enrollment paperwork for new hires can be consolidated and sent to one place.

Take a few minutes and calculate how little it costs to provide this benefit to the staff of your organization. If you currently have a LTD policy, compare these rates to what you are paying. You may be able to realize a significant savings.

Example: Cost for a 36-year-old volunteer coordinator making $30,000 per year, 90 day eliminations. $30,000/100 = 300 300 X .39 = $117.00/year or $9.75 per month.

If you want additional information, email Nancy Hall at Maryland Nonprofits.  If you have made a decision and are ready to enroll, contact Rob Cannon at Gorges & Company. He can be reached at 410-561-8280 or 800-449-8280.

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