What You Need to Know About Group Disability Insurance
While employer provided disability insurance is a great first layer of income protection, there are some important drawbacks to be aware of.
Here is an overview of the pros and cons of group disability insurance:
Benefits of group disability insurance:
- It’s easy to get – All you have to do to qualify for a plan is fill out a form and check a few boxes. That’s it. No underwriting. No agents calling you.
- It’s cheap – Many employers pick up the cost for group coverage, but even if you have to pay for it yourself, the premiums are a fraction of what an individual policy would cost.
- You can’t be turned down because of your health – You don’t have to qualify medically to get it. They offer the coverage to everyone in the group without a medical exam and regardless of your medical condition.
Drawbacks to group disability insurance:
- Group disability plans usually payout a fraction of your actual income – Any benefit you are awarded is then reduced by workers comp, Social Security benefits, legal settlements, other group or association disability coverage and any income earned in a different occupation. In addition, what’s left is taxed as ordinary income. If all you have is group, be prepared to live on less than half of your income.
- Group disability plans often have a restrictive definition of disability – To qualify as disabled, you may have to be unable to do ANY job to receive benefits. The insurance company may determine that you can teach or do consults (or anything else) and deny benefits altogether.
- Group disability plans are not portable – If you change jobs, you can’t take your plan with you. If you’re unhealthy, you may not be able to buy coverage elsewhere.
- Your employer or the insurance company can change or cancel your coverage at anytime – You might start out with one contract, but at time of claim, have something very different (or no coverage at all). You have no control over the policy.
- Group disability plans limit your legal rights – Group companies are covered by ERISA, a federal law that protects them from being sued by their policy holders. The result is you have little to no recourse if you are unfairly denied a claim.
For more on group disability, check out this video by Ben Glass. He is an attorney specializing in helping disabled people collect on their employer’s group disability plans. It’s called “Robbery Without a Gun”
If your employer provides group disability insurance, you may want to consider adding an individual disability plan on top of your group coverage as an extra layer of protection. By doing this, the two policies can work together to better protect your income.