Group life and disability insurance

Why add group life and disability insurance

Most small business owners think about health coverage first, and that is the right order. Life and disability coverage answer a different question: what happens to an employee's family if the paycheck stops. A long illness or injury can keep someone out of work for months, and few people have savings that last that long. Group coverage fills that gap for a modest monthly cost, and it is often the benefit employees did not know they needed until a coworker used it.

These plans sit beside any health option, whether that is a small group plan, a level-funded plan or an ICHRA.

Group term life

Group term life pays a set benefit to an employee's beneficiary if the employee dies while covered. Employers usually choose a flat amount, like $25,000 or $50,000, or a multiple of salary. Many plans bundle accidental death and dismemberment coverage, which pays an extra benefit for covered accidents.

The cost of the first $50,000 of employer-paid coverage is tax free to employees, which makes that amount a common choice.

Short-term disability

Short-term disability replaces part of an employee's pay, often around 60%, when illness, injury or childbirth keeps them from working. Benefits usually start after a short waiting period and last a few months.

California, Hawaii, New Jersey, New York and Rhode Island run or require their own short-term disability programs. A group plan in those states has to work with the state program.

Long-term disability

Long-term disability starts after a longer waiting period, often 90 days, and can pay a share of income for years. It protects against the biggest financial risk most workers face: a long stretch without a paycheck. Group policies often cap the monthly benefit, so higher earners sometimes add individual coverage on top.

Employer-paid or voluntary

You can pay for coverage, share the cost or offer it as a voluntary benefit. Who pays changes how benefits are taxed: when the employer pays disability premiums, benefits are taxable to the employee. Some employers pay for life coverage and offer disability on a voluntary basis to balance cost and tax treatment.

State rules to plan around

Disability coverage is one of the few benefits where state law changes the design. Employers in the five states with their own short-term disability programs build their group plan around the state benefit. Elsewhere, including Kansas and Missouri, short-term disability is entirely up to the employer. Our small business health insurance guide covers how these benefits fit with your health plan and taxes.

What we compare

We look at benefit amounts, waiting periods, how long benefits last, the definition of disability and any state program you have to fit around. Then we quote employer-paid and voluntary versions so you can choose the mix. Most carriers can quote these lines from a simple employee list with ages and salaries.