Short-Term
Disability Policies
Short-term disability policies are private policies that you
can buy for your employees. Short-term disability insurance is
designed to provide income to employees who become disabled due
to sickness or an accident and are unable to work after an
initial waiting period (generally, one to seven days).
Short-term benefits are usually expressed in terms of the
maximum number of weeks that the plan will pay (the industry
standard is 26 weeks). Government statistics show that these
benefits typically replace about 50 percent to 67 percent of an
employee's income.
How short is short-term? Benefits payment is usually
expressed in terms of a maximum number of weeks (13, 26, or 52)
of benefits for a single period of disability. While statistics
show that most short-term disabilities last far less than 13
weeks, 26 weeks is the most common limitation on disability
policies.
Waiting periods. Generally, an employee will be
required to satisfy a waiting period before disability benefits
will begin being paid. During the waiting period, employees are
likely to use sick
leave, vacation,
or personal
leave, if you offer those benefits. If an employee is
collecting disability benefits and the duration of the
disability exceeded the limits of the short-term policy, the
employee would probably begin collecting under a long-term
disability plan (if you offer one) or benefits would
terminate.
Tax treatment of disability benefits. Amounts received
by an employee through accident or health insurance for personal
injuries or sickness are included in the employee's gross income
to the degree they are:
- attributable to employer's contributions that were not
includible in the gross income of the employee
- paid by the employer
An employee's gross income does not include amounts
received through accident or health insurance for personal
injuries or sickness to the extent that the payments received:
- constitute payment for the permanent loss or loss of use
of a member (i.e., arm, leg, hand, eye) or function of the
body or the permanent disfigurement of the employee or the
employee's dependent
- are computed with reference to the nature of the injury,
not the period the employee is absent from work
Coordination with worker's compensation. If payments
from a short-term disability would be reduced by any amount
received from workers'
compensation, you should inform your employees, either in a
policy, a handbook, or other written statement. Don't rely on
the offset provisions contained in the insurance contract with
the disability carrier.
Administration. If you purchase a policy through a
company, an agent, or a purchasing alliance, the plan may be
subject to a federal law known as ERISA.
The company providing the insurance will probably be the plan
administrator, but you may be required to distribute information
about the plan to your employees as part of a disclosure
requirement. You may also be required to provide claim forms to
employees and to provide the insurance company with information
regarding the employee's eligibility status and compensation
amount. Your insurer should provide claim forms and other
necessary materials for distribution to your employees.
Make sure that you know up front which administrative
responsibilities the insurer will be taking care of and what
your responsibilities will be.
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