Winter 2006 / No. 66
Voluntary STD plans continue to
grow in popularity
It’s not uncommon
today for people to live paycheck to paycheck or to accumulate
a significant amount of debt in order to have the things they
need—and want. Yet, most don’t stop to ask themselves
what they would do if they suddenly were unable to earn their
paycheck. Where would the money come from to pay all those
bills, to save for college and retirement, etc.?
The risk of disability
is high—on the road, at home, and at work. In fact,
according to the website protectyourincome.com, from the MDRT :
- Approximately
one out of seven people who are between the ages of 35-65
can expect to become disabled for five years or longer.
- Men have a 43%
chance of becoming seriously disabled during their working
years; women have a 54% chance.
- Forty-six (46)
percent of all foreclosures on conventional mortgages are
brought about by a disability; approximately 2% are caused
by the death of the homeowner.
- If a person puts
away 10 percent of his/her income each year, then simple
arithmetic says that one year of being totally disabled could
wipe out the 10 years of principal put into savings.
Most people in the
U.S. are better prepared financially in case of death (usually
with life insurance) than if they get disabled even though
the chances are at least three to five times greater, depending
on age, that a disability will occur. Despite these startling
statistics, disability insurance is often overlooked.
The voluntary/worksite
market has not overlooked these facts. In fact, in 2004, disability
products accounted for 23 percent of total voluntary/worksite
sales, with short-term disability comprising most of this.
Specifically, STD accounted for about 70 percent of the total
disability sales, with LTD making up the remainder. Total voluntary
STD sales for 2004 are estimated at $682 million. Clearly,
disability product sales have been—and still are—a
major component of worksite sales.
So, what does today’s
voluntary short-term disability product look like? Nowadays,
carriers offer a variety of disability plans with benefit durations
ranging from as little as four weeks up to five years. Both
individual and group platform products are widely sold. The
benefit amounts offered range from $300-$6,000 per month. Most
carriers offer up to 60 percent income replacement.
Although there is
still relatively little differentiation among voluntary disability
products, some carriers are adding “unique” features
like:
- Partial disability
benefits
- Rehabilitation
benefit
- Waiver of premium
or continuation of coverage for lay-offs
Some products also
allow the employee to select the benefit amount and some design
features so that the product is more tailored to their needs.
Guaranteed issue
underwriting is fairly common for both group and many individual
platform plans. Several years ago underwriting was often a
differentiator between plans but not so today. Group and individual
carriers offer similar types of underwriting.
The future for VSTD
products is also expected to be strong. Many carriers say their
VSTD plans are already their number one selling product; others
expect to sell more voluntary STD as employers move employer-funded
plans to employee-paid in an effort to control overall benefit
costs. Carriers would do well to continue to look for ways
to differentiate their voluntary disability product from others
in the market. Although product differentiation alone is not
enough to ensure sales success, it does allow carriers to avoid
competing for the “lowest price.”
Eastbridge Consulting
Group recently published a new spotlight report on voluntary
STD plans, Voluntary Short-Term Disability Plans,
which examines the best practices of 24 carriers in the areas
of product features and benefits, underwriting guidelines,
and administration. The report is available for $4,000. For
more information, call us or email us at info@eastbridge.com. |
