Group Disability Insurance - Plan Types and Other Group Arrangements

Plan Types
The employer may offer both short- and long-term disability or only long-term coverage.

  • Short-Term Disability: the employer and the insurer decide upon what the maximum benefit period would be, but usually not more than twenty six weeks. The duration of benefits under short-term disability policies is typically shorter under a group arrangement than an individual one where short-term may extend up to two years.
  • Long-Term Disability: benefit payments would begin once those from the short-term policy end if the employer offers both types of disability coverage. The maximum benefit period often exceeds two years and may extend to the insured's retirement age.

Other Group Arrangements

  • Credit Disability Insurance: financial institutions furnish what is a form of long-term disability insurance to replace debtors' income in the amount of their loans. Commercial banks, savings and loan associations, credit unions, finance companies and retailers are examples of the types of companies that would purchase such coverage.

    Individual insureds pay the premia and choose which insurer to use. Each borrower may purchase insurance only up to the amount of his or her indebtedness. Creditor companies typically must have at least one hundred debtors per year, though requirements may vary by state law.
  • Franchise Disability Income Insurance: covered under this arrangement are employees of a common employer or members of a common association or society. The employer or group is the sponsor rather than the master policyholder. It collects and remits individual premia to the insurer. The insured holds an individual policy which he or she may keep in force through timely premium payments even if his or her relationship with the employer or association ends. The sponsoring organization determines the amount and type of coverage. Small groups whose size is below the minimum required by state law for group coverage are the typical user of such coverage.
  • Multiple Employer Trusts (MET): this sort of arrangement enables small employers to obtain group benefits for their employees. Coverage may be for one or several types of benefits (life, medical, disability) or even alternative forms of the same coverage (comprehensive or basic group health insurance).

    The employer must subscribe to the trust and receives a joinder agreement evidencing such membership. The employer and trust are the parties to the arrangement, not the individual insureds. Self-funding or a disability insurance contract are the two means of providing benefits. If disability insurance funds the contract, the trust is the master contract holder. The employees receive a master certificate outlining coverage. METs may use either a third party administrator or life insurance company for plan administration.
  • Multiple Employer Welfare Arrangements (MEWA): this is a type of multiple employer trust for labor unions that self insures and has tax-exempt status.
Benefits and Income Tax Implications
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