6-1. Employer-Sponsored Disability Insurance and Life Insurance McGraw-Hill/Irwin Copyright © 2009...
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Transcript of 6-1. Employer-Sponsored Disability Insurance and Life Insurance McGraw-Hill/Irwin Copyright © 2009...
6-1
Employer-Sponsored Disability Employer-Sponsored Disability Insurance and Life Insurance Insurance and Life Insurance
McGraw-Hill/Irwin Copyright © 2009 The McGraw-Hill Companies, Inc. All rights reserved.
Chapter 6Chapter 6
6-3
LEARNING OBJECTIVES
• Disability and life insurance concepts
• Origins of disability and life insurance programs
• Short-term and long-term disability
• Types of life insurance
6-4
DISABILITY INSURANCE
• Short - Term– Last Less Than 6 Months– Disability is an Inability to Perform Any of
Occupation’s Duties
• Long - Term– Lasts Over 6 Months– Disability is an Inability to Perform Work
Qualified For (Training, Education, Experience)
6-5
2006 COVERAGE
• 69% of Private - Sector Employees– 39% Have Short - Term– 30% Have Long - Term
• Full - Time Employees – 46% Have Short - Term – 38% Have Long - Term
• Part - Time Employees – 13% Have Short - Term
6-6
SHORT - TERM DISABILITY
• Pays 50% - 67% of Pre-Tax Salary
• Benefits for 6 Months • Waiting Periods
– Preeligibility – Elimination
• Exclusion Provisions– Self - Inflicted Wounds– Chemical Dependency
6-7
LONG - TERM DISABILITY
• 50% - 70% of Pre - Tax Salary • 6 - 12 Months Waiting Period• Activated after Short - Term Benefits
Expires• Waiting Periods
– Preeligibility– Elimination
• Preexisting Conditions Clause• Exclusion Clause
6-8
FUNDING DISABILITY INSURANCE
• Independent insurance companies
• Partial self-funding
• Total self-funding
6-9
TAX OBLIGATIONS
• IRS Code for Accident & Health Insurance Plans
• Employers Deduct as Business Expense
• FICA & FUTA for First 6 Months
6-10
EMPLOYER FICA & FUTA EXEMPTIONS
• Income after 6 (FICA only)
• Workers’ Compensation Payments
• Disability Benefits after Worker -Initiated Termination
• Employee’s Eligible for Social Security Disability Benefits
6-11
RELEVANT LAWS
• Age Discrimination in Employment Act of 1967
• Americans with Disabilities Act of 1990
• Employee Retirement Income Security Act of 1974
• Workers’ Compensation and Social Security Regulations
6-12
ADEA
• Provides safe harbor for employees with disabilities occurring below age 60
• Older Workers Benefit Protection Act (1990)
6-13
ADA
• Prohibits discriminatory employment practices against individuals with disabilities
• EEOA enforces ADA and oversees violation criteria
6-14
ERISA
• Regulates Benefits Practices
• Disability Insurance
• Health Insurance
• Life Insurance
• Pensions
• Titles I, II, III Apply to Non – Pension Benefits
6-15
STATE WORKERS’ COMPENSATION AND SOCIAL SECURITY DISABILITY REGULATIONS
• Employees may receive long-term disability benefits from public as well as company sponsored disability programs
• Companies and insurance companies may include an offset provision to reduce benefits from workers’ compensation
6-16
TWO INTEGRATION APPROACHES
• Full Integration– Company Payments Reduced by Public
Disability Amounts
• Dual - Percentage– For Employees Without Public Benefits
– For Employees With Public Benefits
6-17
LIFE INSURANCE
• Coverage – 62% of Full - Time Employees
– 11% of Part - Time Employees
• Costs– Manufacturing Industry $120 Per– Non - Manufacturing $83.20 Per
6-18
LIFE INSURANCE
• Term– Most Company-Sponsored Plans
– Specific Termination Date– Payments Only for Death
• Whole– Policy Always Pays Off
– More Expensive
6-19
GROUP TERM LIFE INSURANCE
• Contributory– Employee Pays All or Part of Premium
• Noncontributory– Employer Pays Entire Premium– Employers Gets Higher Tax Benefits
6-20
TAX TREATMENT GROUP LIFE INSURANCE
• Employer can Deduct Premium as a Business Expense
• Employer CANNOT be Beneficiary
• Employee Pays Taxes on Coverage Above $50,000
• Subject to IRC Section 79
6-21
UNIVERSAL LIFE INSURANCE
• Combines features of term life insurance and whole life insurance
• Created to provide more flexibility by allowing the policy owner to shift money between insurance and savings components of the policy
• Insurance company initially breaks down premium into insurance and savings
• Policy owner makes adjustments to the amounts directed at each
• Permits the cash value of investment to grow at a variable rate tied to market
• Leads to changes in premium, benefits, and payment schedules