Employee Benefits · Long-Term Disability
Group long-term disability insurance for Michigan employers
Group long-term disability insurance replaces part of an employee's income when an illness or injury keeps them out of work for an extended time. We help Michigan employers choose the plan design, funding and definitions that fit their workforce and budget.
Schedule a Benefits ReviewWhat does group long-term disability insurance pay?
Group long-term disability (LTD) insurance pays a monthly benefit that replaces a percentage of an employee’s earnings when a covered illness or injury keeps them from working for an extended period. Benefits begin after a waiting period and can continue for years, up to the maximum benefit period in the policy. The benefit is usually capped at a monthly maximum and reduced by other income the employee receives for the same disability.
The core plan design choices we review with you:
- Benefit percentage. The share of pre-disability earnings the plan replaces.
- Monthly maximum. The cap on the benefit, which matters most for higher earners.
- Definition of earnings. Whether bonuses and commissions count, or base salary only.
- Elimination period. How long an employee must be disabled before benefits start.
- Maximum benefit period. How long benefits can continue, often to a specified age.
- Pre-existing condition limitation. Whether, and for how long, conditions treated before coverage began are excluded.
When do long-term disability benefits start, and how does LTD work with short-term disability?
LTD benefits begin after the elimination period, a waiting period stated in the policy that starts on the first day of disability. Many employers set the LTD elimination period to end when short-term disability benefits run out, so an employee moves from one plan to the other without a gap in income. If there is no short-term plan, the employee relies on sick time, paid leave or savings until LTD begins.
| Feature | Short-term disability | Long-term disability |
|---|---|---|
| Purpose | Bridges a temporary absence from work | Replaces income during a prolonged disability |
| When benefits start | After a short waiting period | After a longer elimination period, often aligned with the end of STD |
| How long benefits last | Weeks to months | Years, up to the policy’s maximum benefit period |
| Typical causes of claims | Surgery recovery, maternity, short illnesses and injuries | Serious illnesses, chronic conditions and major injuries |
We look at both plans together so the waiting periods, benefit percentages and definitions line up.
What is the difference between own-occupation and any-occupation disability?
The definition of disability decides who qualifies for benefits. An own-occupation definition pays when an employee cannot perform the material duties of their own job. An any-occupation definition pays only when they cannot work in any job they are reasonably suited for by education, training and experience. Many group LTD policies use own-occupation for an initial period, then switch to any-occupation for benefits to continue.
The length of the own-occupation period, and how the policy defines “own occupation” (your specific job or the occupation as generally performed), make a real difference at claim time. These definitions are worth comparing line by line across insurers.
- Partial or residual disability. Some plans pay a reduced benefit when an employee returns to work part time or at lower earnings.
- Limitations on certain conditions. Many policies limit benefits for mental health and self-reported conditions to a shorter period.
- Return-to-work support. Insurers often offer rehabilitation and workplace accommodation help that can shorten a claim.
How do Social Security and workers’ compensation offset long-term disability benefits?
Most group LTD policies reduce the monthly benefit by other income the employee receives for the same disability. Common offsets include Social Security Disability benefits, workers’ compensation, state disability programs and certain retirement or pension payments. The policy defines exactly which income counts. Insurers often require a claimant to apply for Social Security Disability and may estimate that benefit while the application is pending.
| Other income source | How LTD typically treats it | What to watch |
|---|---|---|
| Social Security Disability | Reduces the LTD benefit dollar for dollar under most policies | Insurers may require the employee to apply and may recover an overpayment once an award is paid retroactively |
| Workers’ compensation | Reduces the LTD benefit when the disability is work-related | Coordinates with Michigan workers’ compensation wage loss benefits |
| Earnings from work | May reduce a partial or residual benefit | Plans differ on how much an employee can earn before benefits stop |
| Retirement or pension payments | May be an offset if the policy lists it | Check how the policy treats voluntary retirement withdrawals |
Many policies set a minimum monthly benefit that is paid even after offsets are applied.
Are long-term disability benefits taxable?
It depends on who pays the premium and how. When the employer pays the premium and does not include it in employees’ taxable income, the benefits are generally taxable to the employee when received. When employees pay the premium with after-tax dollars, the benefits are generally not taxable. When the cost is shared, benefits are usually taxable in proportion to the employer-paid share. Employees and employers should confirm their own situation with a tax advisor.
| How the premium is paid | Tax treatment of premium | Tax treatment of benefits |
|---|---|---|
| Employer-paid | Generally deductible to the employer and not taxable to the employee | Generally taxable to the employee |
| Employee-paid with after-tax dollars | No tax break on the premium | Generally not taxable |
| Employee-paid with pre-tax dollars | Premium paid before tax | Generally taxable to the employee |
| Shared cost | Split between employer and employee | Generally taxable in proportion to the employer-paid share |
Some employers pay the premium but report its cost as taxable income to employees so that any future benefit is received tax-free. Whether that trade-off makes sense depends on your workforce, and it should be reviewed with your tax and payroll advisors.
Should long-term disability be employer-paid or voluntary?
Employer-paid LTD covers every eligible employee, usually with simpler enrollment and less individual medical underwriting, and it signals a strong benefits package. Voluntary LTD lets employees buy coverage through payroll deduction at group rates, adding protection without raising the employer’s cost. Many Michigan employers choose a hybrid: a core employer-paid benefit with an option for employees to buy more. Participation, budget and recruiting goals guide the choice.
- Employer-paid. Broad participation, predictable enrollment, and a benefit that helps recruiting and retention.
- Voluntary. Low or no employer cost; coverage depends on employee enrollment, and insurers may set participation requirements.
- Buy-up or hybrid. A base benefit for everyone, with an optional higher benefit employees can purchase.
Group LTD offered as part of an employer’s benefit program is generally subject to the federal Employee Retirement Income Security Act (ERISA), which affects plan documents, employee disclosures and how claims and appeals are handled. We help you keep the plan materials and enrollment records in order.
Related: Short-Term Disability · Employee Benefits · Health Insurance · Workers’ Compensation
This page is educational and does not alter any policy or provide tax or legal advice. Benefits are determined by the actual group policy and plan documents issued by the insurer.