Building Disability Solutions

Transcription

1 FOR BROKERS Group Disability Insurance Marketing Guide Building Disability Solutions

2 In the U.S., a disabling injury occurs every second, a fatal injury occurs every 4 minutes. 1 Group disability coverage helps build a dedicated workforce by offering employees the protection they need. 1 National Safety Council, Injury Facts, 2010 edition

3 Group Disability Insurance At Principal Life Insurance Company, a member of the Principal Financial Group, we recognize our role in providing your clients with clear, consistent and manageable employee benefit solutions with a personal approach. Our comprehensive products allow you and your clients to build group disability solutions that provide the protection employees need. Our products offer: Flexible and affordable disability solutions Top-notch claim management and rehabilitation services Time-saving eservice options Whether your clients want basic disability insurance, comprehensive coverage rich in added benefits or voluntary options, we offer attractive and affordable disability solutions they will be glad to include in their employee benefit package. 1

4 Table of contents The need for disability solutions 3 Claim management and rehabilitation services 5 Short-Term Disability (STD) insurance 7 Or definition of disability 8 Benefits payable 9 Benefits when not working 11 Benefits when working 11 Survivor Benefit 13 Benefit duration 13 Rehabilitation services and benefits 13 Limitations and exclusions of benefits 14 Additional value provisions 16 Suggested STD product designs 17 Suggested Basic STD options 17 Long-Term Disability (LTD) insurance 18 Or definition of disability 19 Benefits payable 21 Benefits when not working 23 Benefits when working 23 Benefit duration 25 Rehabilitation services and benefits 26 Additional benefits 28 Limitations and exclusions of benefits 31 Additional value provisions 33 Suggested LTD product designs 34 Employee Choice sample design 34 Benefits of integrated STD and LTD insurance 35 Claims payment calculations 36 2

5 The need for disability solutions Most employers recognize the importance of offering a solid employee benefits program. In fact, the majority of small to medium businesses offer some type of employee benefits. 1 With so many employee benefits available, choosing the right ones can often be difficult. Disability insurance is one of the most important, but often overlooked, employee benefits. While employers view life and health insurance as essential employee benefits, they don t always consider the risk that one of their employees will become disabled. Unfortunately, disabilities can happen and without disability coverage, they can have devastating consequences. Financial challenges facing employees Disability insurance can provide financial security for disabled employees and their families during a difficult time. While some people have enough savings to withstand an income loss for a short period of time, most do not have the funds necessary to cover a long-term disability. The cost of medical bills, daily living expenses and family emergencies can really add up especially for disabled workers without disability coverage. did you know? 1 in 4 of today s 20-year-olds will become disabled before they retire. 2 1 in 8 workers will be disabled for five years or more during their working careers. 3 65% of working Americans say they could not cover normal living expenses even for a year if their employment income was lost; 38% could not pay their bills for more than 3 months. 4 1 ProtectYourIncome.com, Disability Insurance Facts, Disability Insurance Education Center. Online at Social Security Administration, Fact Sheet, March Commissioner s Disability Insurance Tables A and C, assuming equal weights by gender and occupation class. 4 Council for Disability Awareness 2010 Consumer Disability Awareness Study. 3

6 Importance of a solid employee benefits program A solid employee benefits package is important to the livelihood of any business. Without a competitive program, it s almost impossible to attract and retain qualified employees. Even in today s changing job market, finding qualified employees can be challenging. Offering a solid benefit package can give your clients an advantage in the job market and help them attract the most qualified employees. The benefits of disability insurance Principal Life builds disability solutions with a variety of benefit designs to fit each of your clients needs. disability insurance from principal life Provides an unbundled design, allowing your clients to create a package that s right for them Helps employers provide a competitive benefit program, allowing them to attract and retain quality employees Includes a number of convenient and time-saving claim services: Internet and fax service, a toll-free phone number and electronic funds transfers for Long- Term Disability (LTD) benefits uses an in-house staff of claim professionals capable of assisting employees with services ranging from rehabilitation to résumé preparation and returnto-work services Allows employers and employees access to their disability benefits and other coverages from Principal Life with our online tools, 24 hours a day, seven days a week Provides access to discounts and services to help employees maintain and improve their health and well-being 4

7 Claim management and rehabilitation services In-house management staff At Principal Life, we strive to provide quality claim management and rehabilitation services. For more than 25 years, our staff of claim professionals has provided claimants with expert assistance and personalized service. In-house registered nurses and vocational rehabilitation specialists assist claimants with rehabilitation and encourage return to work, plus our triage approach allows staff to identify the options available for each claimant. Principal Life provides a complete disability management program through coordination of treatment between our disability case managers and registered nurses. Social Security specialists identify claimants who may qualify for Social Security Disability Insurance (SSDI) benefits and offer support through the application process. Our Social Security Advocacy Services offer assistance to claimants who file for SSDI benefits. In 2011, 90.0% of claimants who received our Social Security services were approved for Social Security Disability Insurance (SSDI). our vocational rehabilitation staff provides: Disability case management Job analysis Coordination of medical release Résumé preparation/interview skills Job modification 5

8 Our claim services We want to provide your clients with the best disability insurance for their money. A key to our company s success is providing excellent customer service and support. We strive to pay claims promptly and accurately. In fact, our consistent attention to detail and convenient customer services have built a strong reputation for Principal Life as an industry leader in claim service. We offer a variety of claim services and encourage customers to contact us with any questions or updates regarding their claim information. From a single claim form to a personal representative for each claim, we provide quality claim services your clients will appreciate. Online Claim Capabilities Customers can quickly and easily submit claims, view claim status and access their Explanation of Benefits 24 hours a day, seven days a week by logging in to Single Claim Form for STD & LTD Disabled employees are only required to complete one claim form for STD, LTD and waiver of premium benefits on their life insurance. We also offer a toll-free fax service. Electronic Fund Transfer for LTD We can deposit monthly disability coverage payments into a claimant s bank account, providing a quick, efficient and easy way to receive disability benefits. Toll-free Number We provide a toll-free number to our claims department, giving our customers convenient access to the claim professionals handling their cases. Rehabilitation Services By focusing on early intervention and case management, our Rehabilitation Services program helps disabled employees return to work earlier. our staff also: Coordinates, assists and answers questions regarding the SSDI claim filing process Offers a toll-free number for claimants with SSDI questions or concerns Researches medical and vocational evidence to support SSDI claims 6

9 short-term disability Short-Term Disability product features Short-Term Disability (STD) coverage replaces a portion of income for employees who are unable to work or have reduced income due to an illness or injury. We offer both a standard STD product and Basic STD coverage in employer-paid and voluntary versions. Both products cover nonwork-related disabilities, with 24-hour coverage also available. Self-funded STD is available to employers having 50 or more eligible employees.* Available as employer-paid or voluntary, Basic STD is an easy-to-understand, affordable product that can be used to provide meaningful income replacement. All that is required for a quote is an employee list that includes gender and date of birth. Because the product offers flat weekly benefits, there s no need to provide occupations or salaries. While not as comprehensive as the standard STD product, it s a good way to start employers in a disability offering. Additional options may be available upon request. All benefits are subject to underwriting approval, and state-required variations are not shown. This summary provides information on our standard product and many optional product features. Eligibility To be eligible for STD coverage, employees must be: Actively at work on a full-time basis for at least 30 hours per week Residing in the United States u.s. citizens or legally working in the United States Part-time, seasonal, temporary or contract employees are not eligible. In certain situations, eligibility hours of less than 30 hours per week may be available. * Employers with fewer than 1,000 employees must purchase at least one insured product. Standalone, selffunded options are available to employers having 1,000 or more employees. 7

10 short-term disability premium contributions STD is available on a noncontributory, contributory or voluntary basis. With noncontributory coverage, the employer pays 100% of the premium. With contributory coverage, the employer and employee share the cost of coverage. With voluntary STD coverage, employees pay 100% of the premium. Employee Participation Employee participation When noncontributory coverage is elected, all eligible employees must participate. For contributory coverage, our standard employee participation is 75%. When voluntary STD coverage is elected, the minimum participation requirement is the greater of 20% of eligible employees or 5 insured lives. Rate Guarantee Period rate guarantee period A one-year rate guarantee is offered for new coverage. A rate guarantee period of two or three years is also available upon request. With longer rate guarantees, if the total covered weekly earnings increase or decrease by more than 25%, rate adjustments will be made at the policy anniversary. Or definition of disability Our standard STD contract includes a residual or definition of disability. We do not require an employee to be totally disabled to qualify for benefits. Under our residual definition of disability, employees qualify as disabled during the elimination period and the benefit payment period if because of sickness, injury or pregnancy, one of the following applies: They cannot perform the majority of the substantial and material duties of their own job; or They are performing the duties of their own job on a modified basis or performing any other job, and are unable to earn more than 80% of indexed pre-disability earnings. We also offer partial and total definitions of disability. 8

11 short-term disability elimination period Benefits begin after employees are disabled for a specified number of days. Under the residual definition of disability, the elimination period may be satisfied with days of total or partial disability. Benefits due to injury can begin as early as the first day of disability and benefits due to illness can begin as early as the eighth day of disability. Traditional STD Elimination period options range from 1 to 30 days. A first-day hospital benefit, which provides benefits on the first day of hospitalization even if the elimination period is longer, is available on contracts with elimination periods of 1 to 15 days. Basic STD Elimination period options range from 1 to 15 days. own Job Own job refers to the job the employee is routinely performing for the policyholder when his or her disability begins. substantial and material duties Substantial and material duties are defined as the essential tasks generally required by employers from those engaged in a particular job that cannot be modified or omitted. modified basis Employees are considered to be working on a modified basis if they are: Working on a part-time basis; or Able to perform some, but not all, of the substantial and material duties of a job on a fulltime basis. Benefits payable After an employee has qualified as disabled and satisfied the elimination period, STD benefits are paid for the duration of the claim based on contract provisions. We offer the following benefit options: Benefit Percentage We offer standard benefit percents of 40%, 50%, 60% or % of a disabled employee s pre-disability earnings; 70% is also available for traditional STD. Maximum Weekly Benefit Traditional STD Up to $2,500 Voluntary STD Up to $1,500 Basic STD Up to $500, not to exceed % of salary Minimum Weekly Benefit Traditional, voluntary and basic STD $15 9

12 short-term disability definition of earnings An employee s pre-disability earnings can be defined in a variety of ways, including base wage and W-2 earnings definitions. Our STD contract also includes an owner s definition of earnings. Customized definitions are also available for teachers/schools. Our standard weekly earnings definition is based on an employee s base wage, which includes: Earnings under a qualified deferred compensation plan voluntary earnings reduction under a Section 125 plan Health Savings Account base wage An employee s base wage does not include: Commissions Bonuses Overtime pay Tips Differential pay Housing or car allowances Stock options Commission and bonus can be included with base wage upon request. An employee s weekly earnings may also be based on their W-2 earnings for the previous two or three calendar years. Our standard W-2, two-year average means employees weekly earnings are based on the weekly average of W-2 earnings for the two previous calendar years, which includes: Earnings under a qualified deferred compensation plan voluntary earnings reduction under a Section 125 plan Health Savings Account W-2 Owner s definition of earnings Our standard contract includes a definition for owner s pre-disability earnings. An owner s weekly earnings are based on the owner s share of gross revenue or income earned, in addition to any: Salary, benefits or other compensation payable to the owner; and Any contributions to a pension or profit sharing plan made on the owner s behalf. An owner s earnings are reduced by the owner s share of the customary unreimbursed business expenses that: Are incurred on a regular basis Are essential to the established business operation Are deductible for federal income-tax purposes Do not exceed the expenses prior to disability 10

13 short-term disability Owner s definition of earnings (Cont d.) An owner s weekly earnings do not include any type of unearned income such as: Dividends Rent Interest Capital gains Income received from any form of deferred compensation Retirement Pension plan Income from royalties Disability benefits Disability benefits when not working For employees not working during the benefit payment period, the weekly benefit equals an employee s primary weekly benefit less income from other sources. Disability benefits when working Our standard residual STD product includes a work incentive benefit when the STD is integrated with LTD. With the work incentive benefit, the weekly benefit for employees working during the benefit payment period is the lesser of: 100% of pre-disability earnings, less income from other sources, less the income an employee receives from working while disabled; or Their primary weekly benefit, less income from other sources. The primary weekly benefit equals the benefit percentage multiplied by the employee s pre-disability earnings but will not exceed the maximum weekly benefit. When the work incentive benefit is not included, partial benefits are paid in proportion to the employee s income loss. Without the work incentive benefit, the weekly benefit for employees working during the benefit payment period is the lesser of: Their primary weekly benefit, less income from other sources, multiplied by the employees income loss percentage; or 100% of pre-disability earnings, less income from other sources, less the income an employee receives from working while disabled. An alternative method for calculating partial benefits is also available. Under this method, the primary weekly benefit is reduced by income from other sources and by 50% of the income an employee receives from working while disabled. 11

14 short-term disability Principal Life s standard contract coordinates benefits with income employees receive from other sources. Offsets are applied to the benefits-payable calculation using a direct dollar-for-dollar formula. income from other sources We coordinate disability benefits with income disabled employees receive from other sources including: All retirement or disability benefits that employees and their dependents receive or could have received from Social Security or other governmental agencies Salary continuance, personal timeoff or sick pay Workers compensation benefits Income from state disability plans Payments from policies that provide coverage for time away from work, if paid in part by or deducted from payroll by the policyholder Income from other group disability coverage policies Disability or retirement benefits paid by pension plans sponsored by the policyholder Income received from no-fault auto laws Renewal commissions received from the policyholder Severance pay All payments received under state unemployment laws The following income sources do not reduce the STD benefit: Individual disability insurance Profit sharing plans Thrift savings plans nonqualified deferred compensation plans 401(k) plans Individual retirement accounts (IRAs) Stock ownership plans keogh (HR-10) plans Social Security retirement or pension retirement payments received prior to disability 12

15 short-term disability Survivor benefit A survivor benefit is paid to the survivor of an employee who dies while receiving disability benefits. A benefit of three times the primary weekly benefit paid in one lump sum is available. Benefit duration The benefit duration is the period of time STD benefits can be paid. The most common benefit durations are 13 or 26 weeks, the only two options available with Basic STD. Additional options are available with Standard STD. The STD benefit duration can be customized to integrate with LTD coverage. An employee s disability benefit will also end when the employee: Recovers Ceases to be under the regular and appropriate care of a physician Fails to provide any required proof of disability Fails to submit to a required medical examination Fails to report income from other sources or any other required earnings information Fails to pursue Social Security Disability Insurance (SSDI) benefits or workers compensation benefits Dies Rehabilitation services and benefits Disabled employees may qualify for participation in a rehabilitation program. Our rehabilitation staff of registered nurses, certified rehabilitation counselors and vocational rehabilitation specialists works with disabled employees, their physicians and your clients to create individualized rehabilitation plans. These plans encourage and assist employees in returning to work. When rehabilitation assistance is approved in advance as part of a rehabilitation plan, we may pay a portion of reasonable expenses. Rehabilitation assistance may include: Coordination of medical services vocational and employment assessment Adaptive equipment purchases Business or financial planning Retraining for a new occupation Education expenses 13

16 short-term disability For voluntary STD, disabled employees who could benefit from an individualized rehabilitation plan will be required to participate in a plan. If employees do not comply with the rehabilitation plan without good cause, their disability benefits may cease. (This provision is included for voluntary STD only when STD is integrated with LTD coverage.) This provision is available but not required for traditional STD coverage. Preventive rehabilitation services may be offered to employees who have not yet become disabled but have a condition that could prevent them from performing the substantial and material duties of their occupation. We offer the following rehabilitation benefits: rehabilitation incentive benefit This benefit provides financial incentive for totally disabled employees who participate in an individualized rehabilitation plan. When totally disabled employees participate and satisfy the requirements of the plan, their benefit percentage will increase by 5%.* reasonable accommodation benefit This benefit helps cover the cost of modifying the worksite to allow disabled employees to return to work. With approval, we reimburse up to $500 for actual expenses incurred to modify the worksite to help a disabled employee return to work. Though usually paid to the employer, if appropriate, it may be paid to the employee.* *These options are normally included only for STD cases that are integrated with LTD. Limitations and exclusions of benefits Certain limitations and exclusions are included in our contract. Benefits will not be paid to employees with disabilities resulting from: Willful self-injury or self-destruction, while sane or insane War or act of war voluntary participation in an assault, felony, criminal activity, insurrection or riot Cosmetic surgery or other elective procedures that are not medically necessary A new or continuing disability that begins after an employee s benefit payment period has ended, but the employee has not returned to active work 14

17 short-term disability maternity options Full maternity coverage is provided with traditional STD. Voluntary STD offers three options related to maternity coverage, as follows: Full maternity coverage Pregnancy- and childbirth-related disabilities are treated the same as any other disability. This is standard. Full maternity coverage after 12 months With this option, benefits are paid for disabilities resulting from pregnancy or childbirth if the disability begins after coverage has been in force for 12 consecutive months. For maternity-related disabilities that begin during the first 12 months of coverage, benefits are payable only if the disability results from complications of pregnancy. Complications only With this option, benefits are paid for disabilities resulting from pregnancy or childbirth only if the disability results from complications of pregnancy. pre-existing conditions limitation A pre-existing conditions limitation is not included with traditional STD. Voluntary STD includes a pre-existing conditions limitation. A condition is considered pre-existing if an employee in the three months prior to his or her effective date under the policy: Received medical treatment, consultation, care or service; or Was prescribed or took prescription medications. Benefits will be payable during the pre-existing investigation for up to six weeks following the date of disability. Benefits will not continue beyond the date six weeks following the date of disability for disabilities resulting from pre-existing conditions unless, when employees become disabled, they have been actively at work for one full day after completing 12 months of coverage under the policy. Options for pre-existing conditions including 3/6/12, 6/12, 6/24, 12/12, 3/3/12, 6/12/24, and 24/24 are also available. 15

18 short-term disability replacement of a prior program This provision is included if we replace another STD policy. If employees are not actively at work on the day coverage would become effective, or if employees are disabled due to a pre-existing condition, they may still qualify for benefits if: They had STD coverage under a prior program. They are not receiving any benefits under the prior program, but would have been entitled to these benefits if the prior program remained in force. no provision other than actively at work or the pre-existing conditions provision would otherwise prohibit benefits from being paid under our policy. Any benefit payable is the lesser of the benefits under our policy or the benefits that would have been paid under the prior program, had it remained in force. additional value provisions In addition to our standard product, we also offer several value provisions. These optional provisions provide your client with a more cost-effective disability insurance program. Mandatory Rehabilitation Disabled employees who could benefit from an individualized rehabilitation plan will be required to participate in a plan. If employees do not comply with the rehabilitation plan without good cause, their disability benefits may cease. Full Capacity This provision requires disabled employees work to their full medical and vocational capacity. If they choose not to, benefits will be paid as if they were working to their full capacity. 40-Hour Work Week Under this provision, employees who are working (or have the ability to work) 40 hours per week are not considered disabled. National Economy Under this provision, an employee s occupation will be evaluated as it is performed in the national economy. 16

19 short-term disability Suggested STD product designs Benefits are offered on a noncontributory, contributory or voluntary basis. Additional benefit options may be available upon request. All benefits are subject to underwriting approval and state specifications. product features standard benefits Minimum Benefit $15 Maximum Benefit $1,500 Benefit Percentage 60% Elimination Period Maximum Benefit Period Definition of Disability Work Incentive Benefit Reasonable Accommodation Benefit Rehabilitation Incentive Benefit Benefits payable on the 8th day for accident and sickness 26 weeks Residual Work incentive benefit included when STD is integrated with LTD; otherwise, partial benefits are paid $500 when integrated with LTD Applies when integrated with LTD Suggested Basic STD options Maximum Weekly Benefit Elimination Period Amount of time an employee must be disabled to begin receiving benefits. Benefit Duration Period of time benefits are payable. Recommended Design $500, not to exceed % of salary* 1st day accident/8th day sickness 13 weeks Options Any amount $ , not to exceed % of salary* 8th day accident/8th day sickness 15th day accident/15th day sickness 26 weeks * Billing per employee is based on the contracted maximum weekly benefit, regardless if that amount exceeds of salary. 17

20 long-term disability Long-Term Disability product features Long-Term Disability (LTD) provides monthly income to employees who are unable to work or have reduced income due to an illness or injury. Our LTD contract provides 24-hour disability coverage for both work-related and non work-related disabilities. Employee Choice LTD is available to employers that want to offer their employees a choice of benefits while keeping the selection process simple. With Employee Choice, employers work with brokers to create two different LTD designs. Three recommended provisions benefit percentage, benefit duration and elimination period have the greatest impact on the total cost of coverage. Greater customization can be created by selecting additional provisions for the two designs. Then during enrollment, coverage options and costs are shown so employees can select the coverage that best fits their budget and meets their needs. Additional options may be available upon request. All benefits are subject to underwriting approval and state-required variations are not shown. This summary provides information on our standard product and many optional product features. Eligibility To be eligible for LTD coverage, employees must be: Actively at work on a full-time basis for at least 30 hours per week Residing in the United States U.S. citizens or legally working in the United States Part-time, seasonal, temporary or contract employees are not eligible. In certain situations, eligibility of less than 30 hours per week may be available. 18

21 long-term disability premium contributions LTD is available on a noncontributory, contributory or voluntary basis. With noncontributory coverage, the employer pays 100% of the premium. With contributory coverage, the employer and employee share the cost of coverage. With voluntary LTD coverage, employees pay 100% of the premium. Employee Participation employee participation When noncontributory coverage is elected, all eligible employees must participate. For contributory coverage, our standard employee participation is 75%. When voluntary LTD coverage is elected, the minimum participation requirement is the greater of 20% of eligible employees or 5 insured lives. Rate Guarantee Period rate guarantee period A two-year rate guarantee is offered for new coverage. A rate guarantee period of one or three years is also available upon request. With longer rate guarantees, if the total covered monthly earnings increase or decrease by more than 25%, rate adjustments will be made at the policy anniversary. Or definition of disability Our standard LTD contract includes a residual or definition of disability. We do not require an employee to be totally disabled to qualify for benefits. Under our residual definition of disability, employees qualify as disabled during the elimination period and own occupation period if, because of sickness, injury or pregnancy, one of the following applies: They cannot perform the majority of the substantial and material duties of their own occupation; or They are performing the duties of their own occupation on a modified basis or performing any other occupation, and are unable to earn more than 80% of predisablity earnings. After completing the own occupation period, employees qualify as disabled if, because of sickness, injury or pregnancy, one of the following applies: They cannot perform the majority of the substantial and material duties of any occupation for which they are or may become qualified based on their education, training or experience; or They are performing the substantial and material duties of their own occupation or any other occupation on a modified basis, and are unable to earn more than 80% of pre-disability earnings. If voluntary LTD, the inability to earn 80% of income required during the any occupation period will change to one minus the benefit percentage. We also offer partial, total and total with Social Security approval definitions of disability. 19

22 long-term disability elimination period Benefits begin after employees are disabled for a specified number of months or days. Standard elimination period options are 90 or 180 days. When the residual definition of disability is elected, the elimination period may be satisfied with days of total or partial disability. The temporary recovery provision allows employees to recover during the elimination period and again become disabled without being required to complete a new elimination period. An employee has a period twice as long as the elimination period to satisfy the required number of days of disability. Traditional LTD Elimination period options range from 2 to 12 months or 60 to 365 days. Voluntary LTD Elimination period options range from 3 to 12 months, or 90 to 365 days. own occupation period Own occupation is the occupation the employee is routinely performing when disability begins. Own occupation does not mean the specific tasks or job the employee is performing for the policyholder or at a specific location. Our standard own occupation period is the first two years of the benefit payment period. Traditional LTD Additional options include 1 year, 3 year, 5 year or end of benefit duration. LTD can also be written without an own occupation period. Voluntary LTD Additional voluntary LTD options include 1 year or 3 years. Voluntary LTD can also be written without an own occupation period. substantial and material duties Substantial and material duties are defined as the essential tasks generally required by employers from those engaged in a particular occupation that cannot be modified or omitted. modified basis Employees are considered to be working on a modified basis if they are: Working on a part-time basis; or Able to perform some, but not all, of the substantial and material duties of an occupation on a full-time basis. 20

23 long-term disability Benefits payable After an employee has qualified as disabled and satisfied the elimination period, LTD benefits are paid for the duration of the claim based on contract provisions. We offer the following benefit options: Benefit Percentage We offer standard benefit percents of 40%, 50% or 60% of a disabled employee s pre-disability earnings; % of earnings are also available for traditional LTD. Maximum Monthly Benefit Traditional LTD Up to $15,000 Voluntary LTD Up to $10,000 Minimum Monthly Benefit We offer minimum monthly benefit options of: $100, or $50, or The greater of 10% of the primary monthly benefit or $100. definition of earnings An employee s pre-disability earnings can be defined in a variety of ways, including base wage and W-2 earnings definitions. Our LTD contract also includes an owner s definition of earnings. A contract salary definition of earnings is also available upon request. base wage Our standard monthly earnings definition is based on an employee s base wage, which includes: Earnings under a qualified deferred compensation plan voluntary earnings reduction under a Section 125 plan Health Savings Account An employee s base wage does not include: Commissions Bonuses Overtime pay Tips Differential pay Housing or car allowances Stock options Commission and bonus can be included with base wage upon request. 21

24 long-term disability W-2 An employee s monthly earnings may also be based on W-2 earnings for the previous two or three calendar years. Our standard W-2, two-year average means employees monthly earnings are based on the monthly average of W-2 earnings for the two previous calendar years, which includes: Earnings under a qualified deferred compensation plan voluntary earnings reduction under a Section 125 plan Health Savings Account Owner s definition of earnings Our standard contract includes a definition for owner s pre-disability earnings. An owner s monthly earnings are based on the owner s share of gross revenue or income earned, in addition to any: Salary, benefits or other compensation payable to the owner; and Any contributions to a pension or profit sharing plan made on the owner s behalf. An owner s earnings are reduced by the owner s share of the customary unreimbursed business expenses that: Are incurred on a regular basis Are essential to the established business operation Are deductible for federal income-tax purposes Do not exceed the expenses prior to disability An owner s monthly earnings do not include any type of unearned income, such as: Dividends Rent Interest Capital gains Income received from any form of deferred compensation Retirement Pension plan Income from royalties Disability benefits 22

25 long-term disability Disability benefits when not working For employees not working during the benefit payment period, the monthly benefit equals an employee s primary monthly benefit less income from other sources. Offsets are applied to the benefit payable calculation using a direct dollar-for-dollar formula. For traditional LTD, a 70% all-source formula may also be used upon request. Disability benefits when working Our standard residual LTD product includes a work incentive benefit. Disabled employees can receive up to 100% of pre-disability earnings for 12 months if they return to work part time. Additional work incentive benefit options include 3, 6, or 24 months. For an employee working during the benefit payment period, the monthly benefit payable for the work incentive period is the lesser of: 100% of indexed pre-disability earnings, less income from other sources, less the income an employee receives from working while disabled; or The employee s primary monthly benefit, less income from other sources. The primary monthly benefit equals the benefit percentage multiplied by the employee s pre-disability earnings but will not exceed the maximum monthly benefit. After completing the work incentive period, partial benefits are paid in proportion to the employee s income loss. The monthly benefit for an employee working during the benefit payment period is the lesser of: His or her primary monthly benefit, less income from other sources, multiplied by the employee s income loss percentage; or 100% of indexed pre-disability earnings, less income from other sources, less the income an employee receives from working while disabled. An alternative method for calculating partial benefits is also available. Under this method, the primary monthly benefit is reduced by income from other sources and by 50% of the income an employee receives from working while disabled. 23

26 long-term disability indexing of pre-disability earnings On March 1 of every year, employees pre-disability earnings are adjusted according to the average rate of increase in the Consumer Price Index (CPI) for the previous year, up to a maximum of 10% annually. Income from Other Sources We coordinate disability benefits with income disabled employees receive from other sources including: All retirement or disability benefits that employees and their dependents receive or could have received from Social Security or other governmental agencies Salary continuance, personal time-off or sick pay Workers compensation benefits Income from state disability plans Payments from policies that provide coverage for time away from work, if paid in part by or deducted from payroll by the policyholder Income from other group disability policies Disability or retirement benefits paid by pension plans sponsored by the policyholder Income received from no-fault auto laws Renewal commissions received from the policyholder Severance pay All payments received under state unemployment laws The following income sources do not reduce the LTD benefit: Individual disability insurance Profit sharing plans Thrift savings plans nonqualified deferred compensation plans 401(k) plans Individual retirement accounts (IRAs) Stock ownership plans keogh (HR-10) plans Social Security retirement or pension retirement payments received prior to disability For traditional or voluntary LTD, we offer a contract that can be changed to offset with benefits from any individual disability policy or only from an employee-paid individual disability policy. 24

27 long-term disability Benefit duration Under our standard LTD policy, the benefit duration is Reducing Benefit Duration (to age 65). For employees who become disabled before age 62, disability benefits are paid until the later of the date: They reach age 65; or 42 months after the benefit payment period begins. For employees who become disabled at or after age 62, disability benefits are payable until the date the benefit payment period reaches the number of months shown below. AGE AT ONSET OF DISABILITY MAXIMUM BENEFIT PAYMENT PERIOD months months months months months months months 69 or over 12 months Under the recurring disability provision, disabled employees who recover and return to work for six months or less during the benefit duration are not required to complete a new elimination period if they become disabled again due to the same or related cause while insured under our policy. An employee s disability benefit will also end when the employee: Recovers Ceases to be under the regular and appropriate care of a physician Fails to provide any required proof of disability Fails to submit to a required medical examination Fails to report income from other sources or any other required earnings information Fails to pursue Social Security Disability Insurance (SSDI) benefits or workers compensation benefits Dies Benefit duration options including 2-year, 5-year, 65/5/70, and Social Security Normal Retirement Age (SSNRA) are also available. 25

28 long-term disability Rehabilitation services and benefits Disabled employees may qualify for participation in a rehabilitation program. Our rehabilitation staff of registered nurses, certified rehabilitation counselors and vocational rehabilitation specialists works with disabled employees, their physicians and your clients to create individualized rehabilitation plans. These plans encourage and assist employees in returning to work. When rehabilitation assistance is approved in advance as part of a rehabilitation plan, we may pay a portion of reasonable expenses. Rehabilitation assistance may include: Coordination of medical services vocational and employment assessment Adaptive equipment purchases Business or financial planning Retraining for a new occupation Education expenses For voluntary LTD, disabled employees who could benefit from an individualized rehabilitation plan will be required to participate in a plan. If employees do not comply with the rehabilitation plan without good cause, their disability benefits may cease. This provision is available but not required for traditional LTD coverage. Preventive rehabilitation services may be offered to employees who have not yet become disabled but have a condition that could prevent them from performing the substantial and material duties of their occupation. 26

29 long-term disability We offer the following optional rehabilitation benefits: rehabilitation incentive benefit This benefit provides financial incentive for totally disabled employees who participate in an individualized rehabilitation plan. When totally disabled employees participate and satisfy the requirements of the plan, their benefit percentage will increase by 5%. Employees are eligible for 12 months of rehabilitation incentive benefits. This provision may be removed upon request. reasonable accommodation benefit This benefit helps cover the cost of modifying the worksite to allow disabled employees to return to work. With approval, we reimburse up to $2,000 for actual expenses incurred to modify the worksite to help a disabled employee return to work. Though usually paid to the employer, if appropriate, it may be paid to the employee. A $5,000 option is also available upon request or this provision may be removed. return to work childcare benefit This benefit provides a financial incentive for partially disabled employees to remain on the job or return to work by helping them cover the cost of childcare for their dependent children. We reimburse employees for a percentage of their childcare expenses for up to 12 months. We offer return-to-work childcare benefits from $100 to $800 per month. We reimburse 50% or 100% of childcare expenses. spouse rehabilitation benefit This benefit provides rehabilitation assistance to the qualifying spouse of a permanently disabled employee. We will provide a one-time spouse rehabilitation benefit. It can be used to pay for a spouse s education expenses, job placement expenses, family care expenses or family moving expenses. Options include a one-time benefit of $500 or $1,

30 long-term disability Additional benefits We also offer a variety of added benefits, designed to enhance any disability package. The following options are available. Cost of living adjustment (cola) COLA is available with traditional LTD. The optional COLA benefit protects disabled employees from inflation by increasing benefit payments on the anniversary of the date benefit payments began. Benefits are increased for a specified period of time. COLA options include 1% to 4%, CPI up to 10%, or 50% of CPI up to 6%. Cost of living adjustments can be applied for 5 years, 10 years or until the end of the benefit duration. dependent education benefit This provision is designed to assist disabled employees with education expenses of eligible dependent children who attend a post-secondary school on a full-time basis. Employees must receive disability benefits for six consecutive months before being eligible for this benefit. The maximum benefit payable is $10,000 for all eligible dependents. Monthly payment options from $100 to $250 per dependent child are available. retirement plan supplement benefit This benefit pays additional dollars into a retirement plan for a disabled employee, and is paid in addition to normal disability benefits. If the benefit is elected, funds are deposited into a Flexible Premium Deferred Annuity or similar contract issued by Principal Life. Employees have full ownership rights to the annuity. To be eligible for the benefit, employees must be employed for 12 months before becoming disabled and receive disability benefit payments for 12 months. Due to the taxability of this benefit, Principal Life can pay an amount equal to 10% or 20% of the retirement plan supplement benefit received during the calendar year. This additional benefit helps employees pay any taxes that may be due on the retirement plan supplement benefit. Options for this benefit range from 1% to 10% of the employee s covered monthly earnings. A 401(k) retirement plan supplement benefit option is also available if an employer s 401(k) plan is legally able to accept contributions from a disability policy. Under the 401(k) option, the retirement plan supplement benefit is paid into an employee s existing 401(k) plan. 28

31 long-term disability accidental disability benefit This benefit ensures that a minimum number of monthly disability payments are paid to employees who become disabled as a result of an accidental injury resulting in the loss of: Sight in both eyes 48 months Both hands 48 months Both feet 48 months One hand and one foot 48 months One hand and sight of one eye 48 months One foot and sight of one eye 48 months One hand or one foot 24 months Sight in one eye 12 months Thumb and index finger of either hand 12 months survivor benefit This benefit is paid to the survivors of employees who die while receiving disability benefits. Our standard benefit is equal to three times the monthly benefit payable. Our standard contract also offers an accelerated survivor benefit option. With this benefit, employees who are diagnosed with a terminal illness and have a life expectancy of 12 months or less may elect to receive their survivor benefit on an accelerated basis. A disabled employee s receipt of the accelerated survivor benefit may have tax consequences and could affect eligibility for public assistance programs. Additional options include three and six times the primary monthly benefit or six times the benefits payable. 29

32 long-term disability activities of daily living (adl) benefit This benefit provides an additional benefit to employees who suffer from catastrophic disabilities. The employer chooses the desired income replacement level, up to 100% of pre-disability earnings. The ADL benefit is determined by subtracting the elected benefit percentage from the ADL income replacement percentage. For example, if the benefit percentage is 60%, the ADL benefit is 40% when 100% income replacement is selected. Employees who are unable to perform two or more of the activities of daily living qualify for ADL benefits. Activities of daily living include: Bathing Dressing Eating or feeding Toileting Transferring Continence Employees must have: A loss of the ability to perform two or more of the activities of daily living without the assistance or verbal cueing of another individual; or A deterioration or loss of intellectual capacity and need for another person s assistance or verbal cueing for their protection or the protection of others. An additional benefit of up to $5,000 per month may be payable under the ADL provision. Options include 80%, 90% or 100% income replacement. individual disability income reverse combo Our LTD product can be sold in conjunction with an individual disability contract. Under a reverse combo policy, we will provide a payment based upon the earnings in excess of the earnings covered by an individual policy. conversion privilege We offer a conversion privilege to employees who wish to retain LTD coverage but are no longer employed due to: Resignation Termination for cause Lay-off Leave of absence With this privilege, employees who have had LTD coverage for 12 consecutive months may convert their benefits to personal LTD insurance without proof of good health. 30

33 long-term disability Limitations and exclusions of benefits Certain limitations and exclusions are included in the contract. Benefits will not be paid to employees with disabilities resulting from: Willful self injury or self destruction, while sane or insane War or act of war voluntary participation in an assault, felony, criminal activity, insurrection or riot A new or continuing disability that begins after an employee s benefit payment period has ended, but the employee has not returned to active work. An optional limitation is also available that limits benefit payments to 12 months for each period of continuous disability while an employee is residing outside of the United States. treatment of mental health/drug and alcohol abuse conditions We limit benefits for disabilities resulting from drug, alcohol or chemical abuse, dependency, addiction or from mental health conditions. Our standard benefit payment period for these conditions is 24 months. The benefit payment period is a lifetime maximum for all periods of disability. If an employee is confined in a hospital or any other type of facility providing treatment for any of these conditions at the end of the benefit duration, the benefit payment period may be extended to include the time period the employee remains confined for treatment. We also offer maximum benefit payment periods of 12 months for voluntary and traditional LTD and 36 months for traditional LTD. Separate limits for mental health conditions and drug and alcohol conditions are available. For traditional LTD, disabilities from drug and alcohol conditions may also be paid the same as any other disability. special conditions For voluntary LTD, we also limit benefits for disabilities resulting from special conditions. Special conditions are conditions that are considered self-reported or difficult to diagnose. If a disability is considered due to a special condition such as chronic fatigue syndrome, carpal tunnel syndrome, headaches or certain back problems, the benefit payments may be limited. For voluntary LTD, our standard benefit payment period for these conditions is 24 months. The benefit payment period is a lifetime maximum for all periods of disability. A maximum of two benefit limits are allowed, even if all three condition limitations (mental health, drug and alcohol abuse, and special conditions) are selected. The 12- or 24-month limitation is a lifetime maximum for all periods of disability. All conditions having the same limited benefit duration count toward a single lifetime maximum. For traditional LTD, special conditions may be paid the same as any other disability or limited to 12, 24 or 36 months. For voluntary LTD, options include 12 or 24 months. 31

34 long-term disability pre-existing conditions For traditional LTD, our standard contract includes a 3/12 pre-existing conditions limitation. A condition is considered pre-existing if an employee in the three months prior to his or her effective date under the policy: Received medical treatment, consultation, care or service; or Was prescribed or took prescription medications. Benefits are not paid for disabilities resulting from pre-existing conditions unless, when employees become disabled, they have been actively at work for one full day after completing 12 months of coverage under the policy. Traditional LTD options for pre-existing conditions including 3/12, 3/6/12, 6/12, 6/24, 12/12, 3/3/12, 6/12/24 and 24/24 are also available. Our voluntary LTD contract includes a 12/12 or 24/24 pre-existing conditions limitation. replacement of a prior Coverage This provision is included if we replace another LTD policy. If employees are not actively at work on the day coverage would become effective, or if employees are disabled due to a pre-existing condition, they may still qualify for benefits if: They had LTD coverage under a prior program. They are not receiving any benefits under the prior program, but would have been entitled to these benefits if the prior program remained in force. no provision other than the actively at work or pre-existing conditions provision would otherwise prohibit benefits from being paid under our policy. Any benefit payable is the lesser of the benefits under our policy or the benefits that would have been paid under the prior program, had it remained in force. 32

35 long-term disability Additional value provisions These provisions can provide your client with a more cost-effective disability insurance program. mandatory rehabilitation Disabled employees who could benefit from an individualized rehabilitation plan will be required to participate in this plan. If employees do not comply with the rehabilitation plan without good cause, their disability benefits may cease. gainful occupation With this provision, gainful occupation is defined within the definition of disability. Gainful occupation is defined as any occupation in which employees can reasonably be expected to earn an amount equal to or greater than their primary monthly benefit amount. increased income loss requirement Under this provision, the inability to earn income during the any occupation period is equal to the benefit percentage instead of the standard 80%. This provision is normally included but may be removed for LTD and is required for Voluntary LTD. full capacity This provision requires that disabled employees work to their full medical and vocational capacity. If they choose not to, benefits will be paid as if they were working to their full capacity. 40-hour work week Under this provision, employees who are working (or have the ability to work) 40 hours per week are not considered disabled. national economy Under this provision, an employee s occupation will be evaluated as it is performed in the national economy. prudent person Prudent person policy text can be included within the pre-existing condition limitation. Under this provision, if a reasonably prudent person would have sought medical attention and the claimant chose not to, the condition may be treated as pre-existing. 33

36 long-term disability Suggested LTD product designs Benefits are offered on a noncontributory, contributory or voluntary basis. Additional benefit options may be available upon request. All benefits are subject to underwriting approval and state specifications. product features standard benefits Minimum Benefit $100 Maximum Benefit $6,000 Benefit Percentage 60% Elimination Period 180 days Benefit Duration RBD (to age 65) Definition of DisabilityResidual Indexing Own Occupation Period Coordination of Benefits Applies Two years Direct Social Security Integration Primary and Family Work Incentive Benefit Partial Calculation Method Survivor Benefit Accelerated Survivor Benefit 12 months Income Loss Three months net Applies Reasonable Accommodation Benefit $2,000 Rehabilitation Incentive Benefit Mandatory Rehabilitation Included Included Employee Choice sample design PROVISION BASIC RICHER Benefit percentage 50% 60% Benefit duration 2 years To age 65 Elimination period 180 days 90 days 34

37 Benefits of integrated STD and LTD insurance Our integrated disability package provides quality protection by combining both STD and LTD into one package. Integrated coverage offers: Smooth and timely transition from STD to LTD, avoiding gaps in claim payments whenever possible Convenient, single claim filing one claim form, one-time only notification In-house rehabilitation and vocational services, offering support and encouraging return to work Work incentive, reasonable accommodation and rehabilitation incentive benefits generally included with integrated disability coverage 35