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Guaranteed Issue Disability Insurance For Small Businesses

The minimum group size is down to two (2) lives.

Income continuation is important for any business, not only to protect the lifestyle of the principal owners, but to get underperforming members off the payroll. Acquiring coverage without medical and financial screening, however, has been challenging for small businesses due to minimum group size requirements.

Fortunately, insurers have recently reduced the minimum group sizes to qualify for guaranteed issue long term disability insurance down to two (2) lives provided certain qualifying criteria are met, including:

(a) The business has been established for at least one (1) year.

(b) All owners and employees that work thirty (30) hours per week must be covered (except as explained below)

(c) A thirty (30) hour per week Actively at Work definition is required. It is not possible to cover an employee that works fewer than thirty (30) hours if the number of eligible lives is under ten (10).

(c) A pre-existing condition limitation will be required for the first twelve (12) months of coverage, possibly longer depending on the carrier. Exceptions may apply if the group is replacing existing coverage and for groups with a concerted effort to get around it (ask).

(d) Family owned and operated businesses may not have a lot of choices if more than 50% of the eligible members are related to one another. A group run by a husband and wife with two other employees (for a total of four) would have more choices than if they had only one employee. Not every small group insurer has this requirement, so it isn't necessarily a deal killer. This only limits the field of possible insurers.

(e) The overall risk given the industry, occupations, and ages of the members needs to be favorable. Tree trimming companies, for example, would not be eligible. Neither would a firm that is comprised solely of three men in their 60's.

Do We Need to Cover Everyone?

Discrimination is perfectly legal with disability insurance, but it defeats the primary objective which is to get sick employees off the payroll. One of the realizations business owners come to after having employees for awhile is that firing seriously sick employees is bad juju, and can be downright impossible if relationships are close. On the other hand, continuing to pay unproductive employees indefinitely is sure to cause conflict given that payroll is the firm's largest expense. Additionally, no business wants to be in a position where important decisions depend on subjective medical circumstances. To get out of this jam, businesses purchase group disability insurance on everyone, whether they want it or not.

If a business wants to discriminate anyway, the constraint will be the insurer's risk spreading requirements. The smaller the group, the broader the eligibility needs to be. Groups of 2-4 lives will have to cover everyone that works 30 hours per week. Larger groups can restrict eligibility to members that have served more than a certain number of months or to exempt members (exempt from L&I), as long as five or more remain after the eligibility filters are applied. For the ultimate in flexibility (name your own criteria), the group either needs to be over ten (10) lives or use individual policies that require full medical and financial underwriting.

The Proposal Process is Simplified

The process of getting disability insurance proposals for small groups is more streamlined than for large groups. A claims experience report is not required and business only needs to submit basic demographic information which does not need to include names.

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