In 2019, the average amount disabled workers received from the Social Security Administration (SSA) was around $1,234, with no benefit adjustments based on previous income. If you became disabled tomorrow, could you afford your home, student loans, or other monthly expenses?
Deciding to enroll in a disability insurance policy to protect your income isn’t difficult. What it comes down to is making the best choice. That’s where the debate over individual vs. group disability insurance comes into play. Group insurance plans cover a group of people and are generally offered through an employer; individual insurance plans are policies you enroll in independently. Both types of policies provide valuable protection.
So what are the advantages of individual disability insurance? Do group policies provide the same benefits? Where does group disability insurance fall short? We’ll cover key points of individual vs. disability insurance to help you find the right policy.
Group Disability Insurance
Here’s a closer look at group disability insurance, including what it is, its benefits, and its drawbacks.
What Is a Group Disability Insurance Policy?
Group insurance is provided through a plan sponsor and covers a group of people. Employers usually offer these insurance plans to employees. However, you could be part of a group insurance plan through another avenue, such as a professional organization of which you’re a member.
What Are the Benefits of Group Disability Insurance?
- Easy Enrollment: In most cases, it’s easy to sign up and qualify for these plans, even if you have a pre-existing condition. Additionally, paperwork is limited because coverage is pre-determined by the sponsor’s group plan.
- Affordable: Your sponsor will likely pay all or most of your premiums, so these policies are a low-cost option.
What Are the Disadvantages of Group Disability Insurance?
- Less Coverage Control: You don’t have a lot of control or options when it comes to your group coverage. Your employer handles any plan alterations or cancellations.
- Definition of Income: Group disability insurance plans cover a portion of your income. However, your insurance may exclude certain forms of income, such as bonuses and commissions.
- Definition of Disability: Group plans have limited definitions of disability. For example, you may need to be considered completely disabled to receive benefits. Additionally, you may not be regarded as disabled if you’re deemed able to perform work in any other occupation.
- Payout Reductions: Group policies have language including “Deductible Source of Income,” which is a list of potential other sources of income you could receive while disabled. If you receive any of these items, it will reduce your group payout accordingly. This includes items such as Social Security Benefits, Workers’ Compensation, lawsuit settlements, any other pay while disabled, etc.
- Non-Portable: You’ll experience a lapse in coverage if you change employers. If your new employer doesn’t provide group disability insurance, you would need to start investigating individual disability insurance plans, during a time where your health may have changed affecting coverage options.
- Taxability: Your benefits are taxable if your employer pays for your group disability insurance.
Individual Disability Insurance
Let’s go over individual disability insurance, including what it is, its advantages, and its drawbacks.
What Makes Individual Disability Insurance Different?
Individual disability insurance works similarly to group insurance plans, but these policies are under your control and unaffected by your employer. They stick with you no matter your career changes, and you determine every facet of your plan.
Let’s take a closer look at individual vs. group disability insurance plans and how they compare.
What Are the Advantages of Individual Disability Insurance?
- Portability: Your policy will continue to provide coverage, even if you change jobs or are between jobs.
- Tax-Free: These plans are non-taxable, so your benefits are yours to keep.
- No Payout Reductions: If you collect lawsuit settlements, Social Security Benefits, Workers’ Compensation, or any other pay, your claim payouts will not be reduced.
- Definition of Total Disability - True Own Occupation: The definition of total disability will consider you totally disabled if you are no longer able to perform the substantial duties of your occupation, or specialty if you are a medical professional. With True Own Occupation, you’ll be able to work in another occupation or specialty without your claims being affected, as long as you cannot work in your own occupation/specialty.
- Customizable: Many facets of your individual disability insurance plan can be customized to your needs and wants, including the benefit amount in your policy, the definition of disability, and riders. For example, you could select the length of time you need to be disabled for in order to begin claims (elimination period), or the length of time your benefits will pay out for (benefit period).
What Are the Disadvantages of Individual Disability Insurance?
- Higher Premiums: Since you receive far superior benefits than with group plans, your insurance premiums will be higher. Additionally, coverage options, age, and health will determine your premiums.
- More Steps to Enroll: You’ll face more paperwork, medical and financial underwriting, and decision-making when enrolling in an individual disability insurance plan. You may also be required to complete a medical exam.
Do I Need Individual Disability Insurance If I Have Coverage through Work?
Having disability coverage provides a safety net, and it feels good to know your income is protected should you become disabled. However, group disability policies often provide a false sense of security and fail to deliver crucial benefits when you need them most.
Individual vs. group disability insurance is a hot-button topic. Still, the fact is that individual disability insurance policies provide more coverage, more benefits, and more customization options, so you can get a policy that suits your career and lifestyle.
Learn more about your individual disability insurance options by requesting your free quote.