DISADVANTAGE OF GROUP DISABILITY INSURANCE
Group disability insurance is often very limited as described below. To compensate for these limitations, you should consider obtaining an individual disability insurance policy that will protect you beyond any available group coverage. The benefits received from an individual policy are income tax free and may help to replace a higher percentage of your income. This is especially important if your group coverage is paid by your employer and/or capped at a maximum monthly benefit.
Group disability insurance is often very limited as described below. To compensate for these limitations, you should consider obtaining an individual disability insurance policy that will protect you beyond any available group coverage. The benefits received from an individual policy are income tax free and may help to replace a higher percentage of your income. This is especially important if your group coverage is paid by your employer and/or capped at a maximum monthly benefit.
1) The benefit is capped at a maximum. Most group policies are designed to replace a percentage of your income (i.e. 60% or 67%) up to a maximum benefit (i.e. not to exceed $10,000 per month). This limits the amount of benefit you are eligible for. An individual disability insurance policy may be obtained to protect a higher percentage of income above the group coverage. Click here for an example.
2) If the employer is paying for the group coverage, benefits are subject to income taxes. This will reduce your benefit even further. Individual disability insurance benefits can remain income tax free as long as you pay the premium with after tax dollars. Click here for an example.
3) Restrictive definition of disability. Most group policies will only cover you in your specific specialty for a specified period of time (i.e. 2 or 5 years). After this time period passes, it is typically required that you be disabled from working in any capacity in order to continue collecting benefits. Depending on your policy, benefits may stop completely if you return to work - even in a different occupation. Individual disability insurance protects you within your specialty. For as long as you are unable to perform the duties of your specialty, you will be considered disabled, even if you return to work in a new specialty/occupation.
4) It is not portable. If you ever leave your group, you do not have the option of taking the coverage with you. You are now left with no protection and if you can no longer qualify for individual coverage (based on your health), you may have no option other than joining another employer who offers group coverage. Individual disability insurance is portable and will follow you throughout your career, even if you move to another state.
5) It is not noncancelable. Group policies can be canceled at any time by the insurance company. They also reserve the right to increase the premium at any time they see fit. Individual disability insurance that is noncancelable will guarantee that your premium cannot be increased prior to age 65 or 67. In addition, your individual policy cannot be canceled, except for failure to pay premiums, and the policy provisions cannot be changed unless it is to your benefit.
