The Department of the Treasury and the Internal Revenue Service released new guidance that is “designed to expand the use of income annuities in 401(k) plans.”
By Cyril Tuohy
Do corporate human resources departments perceive the need for income protection insurance in the same way that employees do? Does that provide an opening for financial advisers to hammer home the importance of communicating the critical role of income protection?
While the first question may be up for debate, about the second there is – or should be – no further argument, according to Barry Lundquist, president of the Council for Disability Awareness in Portland, Maine.
For advisers, there’s “absolutely an opening,” Lundquist said.
How so? Turns out there’s a gaping hole between the way employees see their need for disability income coverage, and how human resources managers view that need.
More than four in five employees (83 percent) agreed with the statement that a disability can happen to anyone at any time, but less than one in two (44 percent) human resource professionals thought employees would agree with that same statement, according to the council’s 2013 Employer Disability Awareness Study.
The online survey, which queried 553 human resource professionals handling nonmedical employee benefits at their organizations, also found that only 5 percent of employees think disability happens infrequently, but 24 percent of human resource professional thought employees would agree with that same statement.
In short, employees say a disability can strike anyone at any time, but human resources professionals, those responsible for selecting group long-term and short-term disability coverage, believe employees see disability as unlikely and infrequent.
That “disability divide,” the CDA survey found, suggests more employees may be receptive to income protection than human resource professionals believe. This gap offers advisers an opportunity to work with human resources departments to bring both sides closer together.
Human resources managers working with financial advisers “enhance the relationship” a company has with its employees, Lundquist said, in an interview with InsuranceNewsNet. Companies that do the best job of communicating the value of income protection insurance to employees are the ones that typically end up on the top-places-to-work lists.
“It sends a good message,” he said.
When it comes to the length of time employees believe they would be out of work due to a disability, and what human resources managers believe, both groups are far apart.
The survey found that nearly one in three (31 percent) employees predicted they would most likely never return to work if they suffered from a disability, 29 percent said they would be out of work from one to five years and just 7 percent thought a disability would last one to three months. The HR professionals surveyed put those proportions at 1 percent, 7 percent and 44 percent.
In other words, most employees think of disabilities as lengthy and career altering, but human resources professionals believe most disabled employees return to work quickly.
Is this a case of never have so few – the thousands of human resources managers – misunderstood the perceptions about income protection of so many – the tens of millions of employees who could benefit from individual and group long-term disability?
With human resources managers seeing themselves primarily as a source of information to employees, another opportunity for advisors exists in guiding employees about the amount of income protection coverage they should choose, the survey reveals.
Human resource managers appear reluctant to guide employees – perhaps due to professional liability exposures or because of specific plan prohibitions – with regard to the amount of coverage they should opt for.
Only 57 percent of human resource managers agreed that they should provide recommendations on choosing benefits and fewer still – 48 percent – believe their company has a responsibility to help employees protect their incomes from the risk of disability, the survey found.
Pressing employees on the need for long-term disability insurance, particularly at the low rates available through group coverage and with the convenience of payroll deductions, would seem to be a perfect fit for the professional guidance advisers are qualified to provide.
“Disability happens more than people think, but it doesn't happen constantly so they discount the risk,” Lundquist said. “The potential loss is so great that it would seem to me to be out of whack with the amount of time people are spending on it.
Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. He can be reached at Cyril.Tuohy@innfeedback.com.
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