Ideas for Controlling LTD Costs

With medical insurance costs consistently on the rise, every employer is looking for ways to save on benefits. Many smaller employers are so focused on providing affordable medical coverage to their employees that they don't even consider “ancillary” benefits like LTD. These same employers tend to make their final purchase decision based on price.

The risk and financial impact of disability are high, with almost 3 in 10 workers who enter the workforce today expected to become disabled before retiring.* So how can you help design an LTD plan that gives employees the coverage they need while bringing costs down to a point where employers feel it's affordable? Here are some ideas:

Longer Benefit Waiting Periods

A 90-day elimination period, or benefit waiting period, is the norm in the LTD industry. According to a 2006 LIMRA International survey, almost two-thirds of LTD plans have a 90-day benefit waiting period. All of those LTD policyholders — and your customers as well — could save money on their plans by extending that to 180 days

Shorter Own Occupation Period

Reducing the Own Occupation period — say from age 65 to 24 months — can help employers save simply by reducing the number of employees considered disabled from their own occupations.

Limited Pay Periods for Certain Conditions

Limiting pay periods for disabilities caused by conditions like mental/ nervous disorders, chronic fatigue, and alcohol or drug addiction can help control costs. If your customer is really cost-conscious, recommend a very limited pay period — 12 months vs. 24 months.

The 30% Solution

Most traditional LTD plans replace a portion of a disabled employee's predisability earnings, typically 60%, up to a monthly maximum ($5,000 is common). Then most carriers reduce that benefit by subtracting things like Social Security Disability Insurance benefits or work earnings.

If you have a customer with a large proportion of blue - and gray-collar employees, consider recommending a nontraditional LTD plan that replaces a much lower percentage of predisability income — for example, 30% instead of 60% — but is not reduced by other sources of income. In some cases, a severely disabled employee who qualifies for Social Security disability may end up with greater income replacement under the 30% plan than under the traditional 60% plan — at about half the cost.

* Social Security Administration, Fact Sheet, Jan. 31, 2007