Group Disability Insurance at Work
A Great Start...But...
Employees often look into employer-sponsored health and life insurance as soon as they start work.
Employer disability insurance is generally an afterthought that can be added on for $5 or less per paycheck. Employees that sign up for their employer's group disability insurance usually do so because a) it's on the form with life and health insurance and b) it's practically free, so why not?
Problem is, group policies are dangerous because of the false sense of security they give. Many people believe they're covered in the event they can't work. The truth is, the standard group disability coverage has numerous limitations such as:
- Group disability insurance benefits are taxable as regular income because your employer pays the premium. While your policy may pay 60% of your regular income, your take-home cash flow will be more like 42% due to taxes.
- Group benefits are commonly reduced based income from other sources such as federal Social Security Disability Insurance (SSDI), Worker's Compensation, or any plan/program toward which the employer contributes or make payroll deductions.
- Group coverage has monthly benefits limits, usually in the $5,000 range (before taxes). If your annual salary is more than ~$70,000, you will find benefits from your disability insurance to be woefully less, even though the policy is paying a maximum benefit.
- Group policies are written to put the insurance company (which works for your employer) in control of the situation.
Group policies commonly use a "Gainful Occupation" definition of total disability which states disability is recognized when, due to illness or injury, the insured is unable to perform the duties of his/her regular occupation "or any occupation for which he/she is considered reasonably qualified" based on experience, training, and/or education.
The "considered reasonably qualified" phrase means your employer and the insurance company decide when you're elgible for benefits or whether you just need to do something else at your company.
- Employer-based policies often have numerous limitations and qualifications for when and how long benefits will be paid. Mental and nervous-related condidtions are commonly limited to 12 months or less. Same with addiction-related disabilities which may be excluded altogether.
- Group disability insurance ends when you leave your employer. If you become ill or injured between jobs, the coverage won't be there.
|One-third of all Americans between 35 and 65 will suffer a disability that will keep them out of work for more than 90 days. |
(American Council of Life Insurers)
Supplemental Disability InsurancePlugging the Holes in Group Disability Insurance
While employer disability insurance has its problems, it is usually inexpensive and can be successfully used a starting point for protecting your income.
An affordable supplemental disability insurance policy can do the following to help protect your income:
- The supplemental policy may extend your benefit as high as 100% of your regular income. Benefits paid from the supplemental policy are not taxable as income because you pay the premium.
- The supplemental policy may continue to pay benefits even after you are required to return to work in a diminished capacity.
- Maximum monthly benefits paid via a supplemental policy may be specified by you in your policy. Your income during disability is no longer completely dictated by the preset ceiling in your group policy.
- The dollar amount of benefits paid via a supplemental policy are not affected by other sources of income. Your benefit is your benefit.
- Limitations for specific conditions are only in the policy if you accept them as such. Your agent should take you through each coverage exception (if any) prior to your signing the document.
- Whereas group disability ends with employment, supplemental may travel with you. If a subsequent employer offers group insurance, you may be able to sign up for that and tweak your supplemental as necessary. If your new employer does not have a group policy, the supplemental policy may be beefed up to provide primary disability coverage.
For additional information, please submit the form on the right to be contacted by an authorized agent. .