Your employer, particularly if you work for a large company, may provide short- and/or long-term group disability coverage at no cost to you. One of the best features of employer-provided coverage is that there is no underwriting, meaning you automatically qualify for coverage. Group benefits typically cover about 60% of your gross income to a maximum level amount (for example $10,000/month). If your employer is paying the premiums, the benefits are taxable and if you have group coverage and you leave your job, you generally are not able to take the coverage with you.
Is your group disability insurance enough?
The easiest way to determine if your group disability coverage is enough is to add up your monthly living expenses and compare them with the income you could expect from your existing disability coverage, plus any income you can count on from other sources (i.e. social security, personal savings). If your total income from all sources will not be enough to support you and your family, you should consider buying an individual disability policy to supplement your benefits.
Individual Disability Insurance
If your employer does not provide group disability insurance coverage, a good alternative is an individual disability insurance policy you purchase on your own through a qualified insurance professional. You never need to worry about losing coverage if you change jobs. An individual policy also gives you the opportunity to consider policies from a multitude of carriers. If you buy through work, you’re usually limited to buying (or increasing) coverage from the carrier with which your employer is contracted. What’s most important is the peace of mind that you’ll have the means to make ends meet in the event you suffer an unexpected injury or illness, and are unable to work and earn an income. Long term disability insurance, provided by an employer, may be inadequate to meet a disabled employee's needs. This is another reason employees might want to consider purchasing supplemental long-term disability insurance.
Individual Disability Insurance Policy Provisions and Benefits
Provide Evidence of Good Health
An insurance carrier can decide whether or not to insure you. As a result, the carrier can be particular with who they offer coverage to. This, however, enables the company to be more liberal with policy provisions, providing you with better policy definitions.
Portable Policy
With individual disability insurance, you own it and it’s fully portable. This means it moves with you even if you change employers.
Non-Cancelable
The provider cannot change your premiums or cancel your coverage as long as you pay your premiums on time. Additionally, if you purchase your policy at a younger age, you'll be able to lock in a lower premium.
Tax-Free Benefits
If you purchase disability insurance with after-tax dollars, your benefits will usually be income tax free.
Protects Your Insurability
If you experience an adverse change in health, you can increase your individual / supplemental policy in the future without worrying about losing group benefits if you leave your employer.
Group Disability Insurance
Group disability insurance helps attract and retain quality employees and is tax deductible to the business. Coverage is available for both short- and long-term disabilities and often without medical evidence of insurability. Group disability plans tend to have benefit periods to age 65, and typically provide the totally disabled employee a percentage of their salary up to a specified maximum/month.
Short-Term Group Disability Insurance (STD)
Short-term group insurance provides benefits for employees who are totally or partially disabled by a covered injury, illness, or pregnancy. It provides benefits for a short period of time, typically three to six months.
Long-Term Group Disability Insurance (LTD)
Group disability coverage provided by an employer for employees, typically pays 50% to 60% of your base income (pre-tax) for longer periods if you become disabled. LTD coverage usually begins where the short term insurance policy leaves off.
Drawbacks to a Group Disability Insurance Policy
Most group policies require you to be totally disabled to receive benefit
Benefits are not portable if you leave your employer
Benefits can be cancelled by your employer
If your employer is paying the premiums, the benefits are taxable to you, diminishing the amount of benefit you take home
Benefit amounts are capped, reducing the replacement ratio for higher incomes
Do I need short-term or long-term disability?
The best way to assess is to look at your financial situation and determine how long you could survive without your income. Long-term illnesses and injuries can devastate your personal finances. You may have enough savings to weather a month’s reprieve from work, but a three-year battle with cancer can drain resources quickly. If you must choose between long and short term disability insurance, you’d be smart to adopt a long term disability policy, which offers significantly greater financial protection. Ideally, the best choice for most consumers is a combination of both.
Professional Association Insurance
Many professional associations offer members the opportunity to purchase disability insurance through a group plan. Typically, little underwriting is involved and premiums are based primarily on your age and income. Association insurance is similar to group insurance, but typically has a less favorable definition of disability and has limited benefit amounts. If your need for coverage is great and your budget is limited, this is an option you’ll want to explore.
However, there are drawbacks. If you change professions, the coverage may not follow you and there’s always the chance your professional organization could decide to drop its disability coverage. That can’t happen with most types of privately purchased disability insurance, which are guaranteed renewable as long as you pay the premiums. It is important to consider supplementing your group policy with an individual policy. This will provide you with coverage that is portable, more specific to your occupation and will increase your overall benefit.
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