What is Long Term Disability Insurance?
Long Term Disability Insurance (LTD) can help employees cover a portion of their income if they need to miss work due to injury or illness. This benefit can help to ease the employee’s concerns of financial hardship by providing income while they are unable to work. Our long term disability provider is Metlife.
There are two types of Long Term Disability Insurance you can offer your employees: Voluntary Long Term Disability Insurance and Noncontributory Long term Disability Insurance. Please note, employees can only be enrolled in one policy therefore you can only offer either Voluntary LTD or Noncontributory LTD.
Benefit Coverage Options
- Voluntary LTD (VLTD):
- 60% of pre-disability earnings, up to a maximum of $5,000 per month
- Non-contributory LTD (NC-LTD):
- 60% of pre-disability earnings, up to a maximum of $5,000 per month
- 60% of pre-disability earnings, up to a maximum of $10,000 per month
How does voluntary LTD differ from noncontributory LTD?
Voluntary LTD insurance is optional and paid for entirely by the employee. Premiums are deducted from the employee’s paychecks after tax; as a result, claims are tax-free.
Noncontributory LTD is a company-paid benefit that is automatically extended to all employees who are eligible for benefits. Premiums are paid for directly by the company and employees do not pay taxes on these premiums. As a result, if an employee files a claim, the payout from the claim will be considered taxable income.
Company Enrollment
Long Term Disability Insurance coverage only begins on the 1st of the month. To offer LTD Insurance to your employees, follow these steps:
First, to add the benefit, navigate to your company’s benefits center through HR > Benefits > Add Benefits. Find Long Term Disability Insurance and click “Set Up Now”.
Next, you will find detailed information about this benefits; including different options, costs, billing, and more. Once you’ve reviewed this information, click “Get Started”.
Select which Long Term Disability policy you would like to offer, the policy effective date, and click “Review”.
Finally, once you review your selections click “Submit” to complete the company enrollment.
Billing
All Long Term Disability plans are fixed-rate premiums, this means the amount will not change in regard to the age of the participant.
Noncontributory Long Term Disability Insurance: premiums are paid for by the employer. Premiums are charged directly to the employer via a billing invoice on the 5th of every month (or the next business day if the 5th falls on a weekend or holiday). There are no additional fees associated.
The cost is based on the employee’s current income. The monthly cost is determined by taking the monthly benefit and multiplying it by the policy rate per $100 of covered benefit.
Voluntary Long Term Disability Insurance: premiums are paid for entirely by the employee. Premiums are split between the employee’s first and second vouchers of the month (semi-monthly/ bi-weekly/weekly). Please note, if there are 3 biweekly paydays in a given month, deductions will occur on the 1st paycheck of the month and on the 1st paycheck after the 15th of the month.
The cost is based on the employee’s current income. The monthly cost is determined by taking the monthly benefit and multiplying it by the policy rate per $100 of covered benefit.
Who is eligible for Long Term Disability Insurance?
Eligible members would be:
- Full-time employees
- Part-Time Employees (must be working 30+ hours and benefits-eligible)
- Paid owners are eligible for both Voluntary and Noncontributory policies.
- Unpaid owners are only eligible for noncontributory LTD.*
- Premiums: Employers are automatically charged the maximum premium amount for an unpaid owner's policy
- Claim Payout: Unpaid owners will be given the maximum payout in cases of a claim
*Unpaid owners are not eligible for Voluntary LTD because premiums are collected from member’s vouchers, and unpaid owners do not have a salary (and therefore no vouchers) to collect the premiums from.
How can my employees enroll?
Voluntary Long Term Disability: all eligible employees will receive an enrollment opportunity in Justworks at the time of hire or at the time they become eligible for this benefit. Employees will be notified the day after the enrollment period opens and then receive reminders to enroll.
Noncontributory Long Term Disability: all eligible employees will be auto-enrolled. Employees will be notified that benefits are active on the effective date.
When would the Long Term Disability insurance termination occur when the employee is separated?
The policy will terminate at the end of the employee's separation month.
Is Long Term Disability insurance coverage restricted in some states?
Currently, there are no state restrictions.
Disclaimer
This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, legal or tax advice. If you have any legal or tax questions regarding this content or related issues, then you should consult with your professional legal or tax advisor.