If you work for an employer that offers long term disability insurance you have no need for an individual policy, right? While it is nice that some employers offer disability insurance to their employees, there are many flaws that employees should be aware of. Here are some of the main problems we have seen with group & association disability plans:
- The nice thing about many group policies is you don’t have to pay for them. The bad thing is because you don’t pay for it, the benefit becomes taxable when you receive it. So your 60% coverage turns into 42% after taxes (assuming a 30% tax rate).
- Many policies will cover you for up to 60% of your BASE PAY ONLY with a maximum of $5,000 or $10,000. Most will NOT cover you for any bonus, commission, or overtime pay.
- The policy is not between you and the insurance company. It is between your employer and the insurance company. You must be employed full time (30+ hours / week) in order to be eligible for coverage. At any point your employer or the insurance company can chose to modify or cancel the disability policy without your consent.
- Any benefits you qualify for will be REDUCED by other sources of income (retirement benefits, auto insurance payment, lawsuit, sick pay, vacation pay, workers comp, unemployment, or income from another job).
- In most group insurance, the policy is considered “modified own occupation” or “temporary own occupation”. This means that benefits will be reduced if you chose to work in another occupation.
- The insurance company will suspend your benefits and FORCE you to apply for social security disability insurance. If you qualify for SSDI benefits then the income you receive from the insurance company will be reduced.
If you have health issues, then group insurance may be your only option. However if you are healthy you should consider supplementing your coverage with an individual policy. Not all group plans are the same. If you provide us with information on your group policy we would be happy to perform a detailed analysis and discuss your options.