The one HR benefit every startup should add

2013-08-26 by Jason Freedman
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Rising Medical Bills Cartoon

I just did a review of all of our benefits programs. Like other startups, 42Floors offers a great health, vision and dental package  and life insurance coverage.  We pay 100% for both employees and dependents. It’s expensive, but it’s worth it.

Having recently gotten married, I’ve been spending a bunch of time thinking about these sorts of things in my personal life as well.  And one of the things my dad brought up with me is just how important it is to have a good long term disability insurance plan in place.  I had never actually heard about it.  Long term disability is a policy that can pay out 60% of your salary for the rest of your life if you have an occupation-ending injury.

If something should happen to me and I can no longer do my job, a long term disability program could fundamentally preserve the standard of living in my family.  But they’re not cheap.  The premiums I was looking at for a middle of the road plan were around $2,500-$3,000 a year.  That’s a lot of cash to pay year after year.


Back to startups.

Our company benefits provider explained that individual long term disability insurance is much more expensive than a group policy.  To get all of 42Floors covered on a long term disability policy from a reputable firm will cost about $2,500 a year.  That’s incredible.  It’s almost identical to buy a group policy that covers everyone as it is to buy an individual policy that would only cover just me.

But there is so much more than just cost savings. I asked everyone in our company if they had long term disability policies in place.  Big surprise—no one did.  It’s just not something most of us think about.

I’m sitting here envisioning in my head what I would do if one of our employees was no longer able to do their job – what a horrible ethical position to be in.

For a fairly nominal sum, you could cover them with a policy that could make an enormous difference in their entire life.  And if at that horrible moment when you’re hearing the devastating news that one of your employees has been severely injured, you’ll at least know that because you took the time to set up this policy, they are going to receive a majority of their current paycheck for (nearly) the rest of their life.




Sometimes we get caught up with thinking of our various compensation packages and benefits as recruiting tools.  This one won’t really register as a recruiting tool. But, as the founder of a startup you should take the well-being of your employees as your single most important responsibility.  Spend five minutes today.  Do it right now.  Call your broker and get a good long term disability insurance policy in place.  And hope you never have to use it.

About Jason Freedman

Entrepreneur, Co-Founder at 42Floors, Co-Founder at FlightCaster, YC-alum, and a Tuck MBA

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  • HH

    Could you give any details on what your reputable company was? What was the process to get quoted $2,500?

    Thanks much

  • jaredstenquist

    I too am interested in learning about what company provided this at that cost. It seems impossible based on an individual rate of $3k.

    • Shaun Gagnon

      Jared happy to help you. Shoot me a note when convenient.

  • Mike L

    Very good article, but I think it’s a bit of a stretch to claim that you can “spend five minutes today” and set up the right long-term disability insurance policy for your entire company.

  • aarontait

    What about mental health services? Almost all startups skimp on supporting mental health. Which is ironic, since tech startups are completely dependent on the minds of their employees.

    • Tristan

      Not to mention the stressful environment of small startups contributes significantly to decline in mental health… however, I think this is covered by most good medical plans also, or at least can be. Most companies therefore probably offer exactly this even if you don’t realize it.

      • karlkatzke

        Yes and no. All major insurance companies generally cover mental health services, but what isn’t as easily measureable is how good their services are. Cigna Great West (Cigna-GWHC) offers almost no services outside of big cities, for instance. If you have a telecommuting workforce, you should verify that they will have access, and that the people listed in the provider database for that provider actually will take that insurance — many insurance companies have ‘padded’ their provider listings with old listings.

    • Angus McRae

      An LTD claim due to a mental health or substance abuse claims is typically eligible for payment. Check your policy’s pre-existing condition provision and any limitation on the number of years such a claim would be covered. Such claims are usually limited to a two year benefit.

  • David

    There’s often a big difference between individual/personal long-term disability (LTD) plans and group plans. For one, group plans often have significantly more limitations. Don’t fool yourself into thinking that a low quote from an insurance company means that you got lucky; the price is directly proportional to what the insurance company expects to pay out.

    For example, a lot of generic policies start with an “any occupation” clause in place (as opposed to “own occupation”). This means that, technically, you don’t qualify as long-term disabled if you can do some other job than programming (ex. like pushing a broom around). Adding an own occupation benefit will, like everything else, increase the premiums.

    I, for one, have both group and individual LTD in place. As part owner of a company, I agree that it’s a great value-add for employees (especially, as you said, nobody ever thinks about it). However, I definitely recommend that you encourage your employees to evaluate setting up a personal LTD policy for themselves that’s suited to their respective lifestyles and risk tolerance. My personal policy isn’t cheap, but if anything happens to me I know that my family and I will be covered.

  • Angus McRae

    I’m an insurance agent that primarily serves the Atlanta startup community. Group and individual LTD are two different animals and are thus priced differently.

    Behind your medical insurance LTD is the most important coverage you can buy.

    There are important reasons to have both group and individual: (i) becoming uninsurable and leaving your employer, and (ii) that the benefit payable under a group plan is typically subject to payroll taxes and will therefore pay less than the face amount of the coverage.

    I just wrote group LTD on a 6 employee startup here in Atlanta. 90 day elimination period, 60% to $4,000 maximum monthly benefit. The premium was less than $50/month for the whole group.

    That low price reflects the fact the group was mainly young males in a low risk industry.

    Heed Jason’s advice and find a competent, ethical agent to get a quote.

  • Josh Farkas

    Love this.

    Congrats on having the character to make this call, and for spreading the word. You’ve inspired me to do the same for my team. Thank you!

  • George Anders

    David’s caveats are wise and timely. Marketing material may leave you thinking that private disability insurance will unfailingly cover you for decades if you have a bad bike accident, etc. But after most serious injuries, you’re semi-functioning after six months. You’re likely to be deemed employable — and even if you’d like to stop struggling to do a scaled down version of your old job at at 60% effectiveness, your private insurance doesn’t give you the luxury of saying: “It’s just too hard.”

    Besides, millions of people (not an exaggeration) have figured out how to use government disability insurance to their advantage instead. Here’s an excellent Bloomberg article on how that works:

    And that’s free, once you’re enrolled in the social security system.

  • Mark

    Great post, I applaud your choices.

    The employee snack program is another HR benefit that deserves some attention. Most of us offer free snacks, but we’re doing our teams a real disservice if we don’t offer healthy options that they actually enjoy. To that end, we recently developed The beta just launched, I’d love to create an account for you.

    Leave a message…

  • karlkatzke

    This is exactly true.

    I work in IT for a company that’s privately held and is just exiting startup phase and settling in for sustained growth. Last year, I fell off of my bicycle and suffered a pretty severe traumatic head injury. I’m lucky that I retained my ability to walk and talk and was otherwise uninjured, but the head injury reduced my cognitive ability significantly and sent me through several rounds of consultations with physicians and other licensed medical practitioners until we got to the root cause of the problems I was having post-accident.

    While I didn’t need to use the disability benefit (There was QUITE a bit of deferred, low-level yak shaving like documentation updates that I could do), I was off of work completely for a couple of months and suffered a loss of cognitive ability for several more months. In fact, it’s almost been a full year, and I’m still playing catch-up with things that changed or happened while I was out. I’m only now able to exercise and work around the house again.

    This could have happened to any one of my young, active coworkers. It could’ve been a skiing accident, or a bad landing when dunking a basketball after catching mad air, or a skateboarding accident. I would not have made it through without the support that I’ve gotten from my coworkers and family.

    If my company hadn’t been willing to support me through this tough time, I definitely would’ve had to take advantage of the disability insurance. It’s made me look at benefits a lot more carefully.

    • Rasmus Schultz

      Totally off-topic, but we happen to share offices with a brain scientist, David Mumm, who has helped many people recover from head trauma and other brain conditions – if you’re able to make the trip to up state New York, give him a call and tell him Rasmus referred you. His website is

  • mra


  • jk2001

    What happens when the company folds? The benefit goes away. Imagine that these longer-term benefits could be bought using some kind of group like a guild that people pay to join, and maintain their insurance. Companies should pay into these funds in lieu of buying bennies for the company. At least I wish it were that way, though it’s not.

    • Rasmus Schultz

      It’s called socialism – don’t count on that happening in the US.

    • Angus McRae

      This is why you should buy individual disability insurance to supplement your group plan – and to be prepared for the fact you probably won’t work for the same company your entire life.

      Some policies have a “conversion” provision that allows you to convert the group plan to individual, but that’s not an ideal situation.

      • jk2001

        While I agree it’s good to buy individual insurance, it’s suboptimal.

        You’re in a terrible negotiation position when you’re buying individual insurance. The overhead of negotiation is just so great when there’s only one policy in question, but if you buy it as a group, you can hire a negotiator, or just go shop around. The fact you’re bringing so much business will cause the price to drop.

        That’s why it would be good if people could become members of organizations that would buy the insurance.

  • tlrobinson

    The obvious question is how is “occupation-ending” defined, in particular for knowledge workers who could quite possibly continue working with even severe physical disabilities?

    • Angus McRae

      Here is a pretty typical definition of disability:

      You will be considered Disabled if, solely and directly because of sickness, injury, or pregnancy:
      During the Elimination Period and Benefit Payment Period, one of the following applies:
      a. You cannot perform the majority of the Substantial and Material Duties of your Own Occupation.
      b. You are performing the duties of your Own Occupation on a Modified Basis or any occupation and are unable to
      earn more than 80% of your Indexed Predisability Earnings.

  • mabbo

    My Uncle Bern was the successful one of his family. Inflation adjusted, he was making nearing 7 digits at the time of his aneurism. He was fortunate he survived at all, but then came decades of recovery.

    No disability insurance. He’s lived those years living on disability in subsidized housing. Thank God for the strong Canadian social system.

    Thank you for telling people about this.

  • J P

    Another option is to potentially move to a country with sane socialised health care and accident, illness, and injury compensation for their citizens.

  • dan

    Thanks for the good post Jason. I’m a startup CEO that’s just post funding and scaling. Benefits and insurance are a new puzzle for me, while we offer great health and dental, I hadn’t considered LTD, and I assumed it was much more expensive. After reading, I just put a request in for a quote. Any good blog posts on insurance and benefit basics for early stage cos?

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