If you are like most people, you might see that your company offers you some pretty good benefits. One of those benefits just might be group disability insurance. You say ‘great’ and sign right up. The money comes right out of your paycheck and you think ‘at least if something happens I am protected’. That’s perfectly normal. Just like any healthy well adjusted person you think two things: 1. I’m never going to need it, and 2. I’m covered just in case.
What most people don’t realize is what ‘covered’ means. If you are really on your group disability insurance the key is that you don’t control the coverage that you have, your employer does. Whether it is good, great or horrible coverage is up to you to figure out. Last time we looked at 7 Ways Your Group Disability Insurance Will Fail. Today, we’ve got a few more things to add to the list.
- You could loose your job. Your group disability insurance policy is dependent on you having a job. Since it is offered through your employer, if you loose your employment you loose your policy. The next job you get may or may not offer the same benefits. Also, if they don’t, you maybe paying more for your individual disability insurance policy because your not getting any young and your health probably isn’t getting a whole lot better.
- You could loose your policy. Your employer controls your policy. They decide how good of coverage the group disability insurance policy will offer. Just because you have a good policy today doesn’t mean you will tomorrow. When times are tough your employer could easily decide to cut coverage to save money. Or worse yet, they could drop it all together.
- Expect the premiums to increase. It’s a group benefit. Just like your health insurance, every time your plan is up for renewal you are most likely going to see a premium increase. Unlike, health insurance, some of the larger group disability insurance policies might lock in premiums for 2 or 3 years. However, they are still going to increase soon whereas an individual disability insurance policy the premiums are locked in as long as the policy stays in force.
- It’s an ERISA plan. Group disability insurance plans fall under a federal statute called the Employees Retirement Income Securities Act (ERISA). The biggest downfall for this in regards to disability insurance is appeals. If you were to get denied a claim through a group policy there are a lot stricter set of rules to follow. You’re options are also a lot more limited. For instance, through ERISA you are not entitled to a jury trial and you will almost never receive any type of attorney’s fees or punitive damages.
- It’s limited to your employment income. Do you have any income that you receive outside of work? When I say that I mean earned income. Any unearned income will offset you disability benefit in an individual policy. However, any earned income outside of your employer will not be covered. Maybe you have a side job that you receive income from or a second job, these are not covered.
It’s not unusual to find out that the coverage you thought was great is grossly inadequate. Do you, and more importantly, your loved ones a favor, review your coverage. Talk to a qualified financial professional when you don’t understand what they are telling you come ask me. An insurance assessment is a great way to learn about what you do have and make better decisions with your money. Most people will supplement their group disability coverage with an individual disability insurance policy to fill the gaps and/or shortfalls.
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Some employers drudge over offering Group Disability Insurance. However there are many advantages of having such a program in place. Everyone need disability protection, your employees are no different.
Jamel:
Group disability is definitely better than nothing. Even though it might not sound it I’m a fan and definitely agree that it should be offered. My concern is that people think it is the best coverage they can get or think they are all set without fully understanding the coverage that might be offered to them. I even meet people that say they are covered when their employer doesn’t offer disability insurance but some supplemental duck comes in selling them junk. It can become pretty scary.
Another problem with all Group insurance is that you might be in a better position than your peers! Group insurance by its very nature has to pad the risk towards the middle of the pack, but maybe you aren’t the middle of the pack!
.-= Evan´s last blog ..Helping my Brother Choose an Online Broker =-.
Evan:
You are right. I always try to tell people whether it be group disability or life insurance why not just get a quote for individual coverage just to see how it compares. I’ve see more than a few people get better coverage for less going away from the group.
this is certainly pretty interesting. Grp disability often is cheaper for so many, but these warnings are certainly worth thinking about. Interestingly enough, my present employer doesn’t offer it, so I did purchase disability insurance on the open market.
.-= Roshawn @ Watson Inc´s last blog ..Announcement: Watson Inc is Joining the Yakezie Samurai Challenge =-.
Roshawn:
Unfortunately, group disability coverage is grossly misunderstood. How was your experience purchasing an individual policy?
Overall, purchasing disability insurance was painless and the product was reasonably priced. The agent said that it was my choice to keep the insurance once I got a job the provided group insurance, whch seemed like a good idea. My policy allows me to protect 60% of my income, provided I become disabled, and the terms are very favorable.
.-= Roshawn @ Watson Inc´s last blog ..Announcement: Watson Inc is Joining the Yakezie Samurai Challenge =-.
Since I’m self-employed I’ve been jealous of all the options available to groups. But, I guess at least I have one insurance advantage by being self-employed.
.-= Craig Ford´s last blog ..Passwords Security | How To Safely Store Passwords =-.
Another issue is that most of these policies will assume you are receiving Social Security Disability benefits, which means they hold back a portion of the income until you prove to them that you are not on SSD benefits! That whole process could take on average about 18-36 months!
If you do prove it, you can get that money that would’ve been paid to you, but in the meantime you might think you’re getting 60% of your income only to find out that you will get much, much less than that!
.-= Jason @ Redeeming Riches´s last blog ..What is a 529 College Savings Plan? =-.
Good post and some excellent comments. One additional issue with a group policy and even with some policies purchased in the open market is the definition of disability. The best definition here is the most narrow in that if you were unable to perform your own narrowly defined occupation then the policy would pay. People need to understand the definition of disability or otherwise they might find themselves forced to take a job “flipping burgers” or the like in order to collect a partial benefit.
As you mentioned group policies are limited to employment income. I’ve worked with clients who are executives and this can be a real issue. In one case the policy covered 60% of his base salary. This particular executive typically earned a significant portion of his income from bonuses and grants of stock options and restricted shares. This additional income would not have been covered and could really have put this executive in a tough spot. A solution here is to look at an outside policy to supplement the group policy.
Roger Wohlner´s last [type] ..Target Date Funds-A No Brainer
Excellent post and pointers here! I tend to agree with Roger… if your company provides you with group coverage, excellent! But one should assess their individual financial situation and invest in an additional policy if possible.
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