Cost or Value – Your Call

A quick, uneducated decision can be a costly decision. Investing a few more minutes to understand a product or service allows for making a valuable decision. This issue comes up frequently with supplemental benefits, where employees are either hurried by enrollment conditions, or simply don’t take the time to understand their options.

Here’s an illustration from an actual occurrence:

Employer group ABC allows employees to choose supplemental benefits from two companies, X and Y.  After all, if the companies were equivalent, there would be no point in offering them both.   Yet the employees have little idea such is the case.  Company X leveraged political connections to ensure that it meets with every employee, while keeping representatives from Company Y away.   Company X flies in enrollers who are more than eager to replace Company Y policies with Company X policies.  Many of the employees simply look at the cost of the premium and switch, not realizing the tradeoff.

Disability insurance highlights some of these types of tradeoffs.   Company X representatives were having employees replace Company Y short term disability policies with Company X long term disability policies.

Company X:
• “Group” policy, meaning it is not portable. Should the employee leave the employer, the employee may not keep the policy.
• Available elimination (waiting) periods are long, 4 months or more.
• Disability benefit to age 65, i.e. long term.
• Restrictive definition of disability. Does not pay if able to do any work at all.
• Relatively slow to pay claims.
• “800 number” customer support.

Company Y:
• “Individual” policy, meaning fully portable. Should the employee leave the employer, the employee may keep the policy without a change in cost, and without having to prove insurability.
• Short elimination periods available, even zero days.
• Disability benefit period up to 2 years, i.e. short term.
• Liberal definition of disability. Allows for 100% disability payment even while recovering until able to do 80% of normal work. This is a huge benefit.
• Typically very quick at processing claims.
• Local live customer support in addition to “800 number” support.

The Company X long term disability policy with equivalent monthly benefits for a given person was cheaper than a Company Y short term disability policy.  But is it better value?

The answer is, “it depends.”   For someone who is not concerned about short periods of disability or the possibility of leaving an employer, and who is more concerned about permanent disability, then Company X might be a better choice.   Conversely, someone who would want the benefits sooner and even while working with restrictions, and might want to change jobs or become self employed and not worry about having to qualify for a new policy, then Company Y short term coverage would likely be superior.   Statistically, most disabilities last a few months, such as a broken leg from a skiing accident.  The longer the waiting period, the less likely the policy will yield benefits.

The question is, will an ABC employee grasp this differentiation during a couple minutes with an enroller who has the singular mission of selling policies from Company X?

Say you are an ABC employee.   Do you just want to check off the list that you “covered” a need, in this case disability, or do you want to really know when and how you are covered?  Do you want to know if the agent is local, someone you will actually be able to reach again?   Do you want to know if your agent is captive to selling policies from a single company, or does he have the knowledge, resources, and interest in your overall situation to make objective recommendations?  Does he care if he will see you around town, or does it seem as if he’s glad he’s, as the airline commercial says, “some place else?”

Deciding merely on cost is quick to do, but might be a costly mistake.   Determining value makes for sound decisions, but it takes a few more minutes of your time.  Your call.