5 Ways Individual Disability Insurance Differs From Group Coverage

​You use insurance to protect yourself from a wide range of financial risks. You have homeowner’s insurance to cover damage to your house and car insurance to protect you on the road. Health insurance helps you get the medical treatment you need. You may even have life insurance to protect your loved ones in the event you pass away.
 
But do you have insurance to cover financial threats related to disability? According to the Council for Disability Awareness, 25 percent of all adults will miss work because of disability at some point in their lives.1
 
Many people fail to plan for disability risk because they participate in an employer’s group disability plan. They may believe that the group coverage will minimize any financial challenges created by a disability. However, group coverage often isn’t enough to minimize every threat. In fact, you could face significant hurdles even if you have group disability insurance.
 
Below are some of the key differences between group disability insurance and an individual policy. If you don’t have group coverage, or feel yours is insufficient, you may want to talk to your financial professional about additional protection tools.

Cost
 
In most cases, group disability coverage will be less expensive than a comparable individual policy. This is true of most types of insurance. The risk is shared and distributed in a group policy, which minimizes the cost. Also, it’s possible that your employer may pay a portion of the premiums.

However, an individual policy may not be as costly as you think. You can often choose the coverage and benefits that are right for you and your budget. A financial professional can help you find the most cost-effective protection strategy.

Benefit Amount
 
Many group policies replace a percentage of your salary when you become disabled. That percentage is usually fixed as part of the group plan. It also may not be a significant amount. It’s not uncommon for group plans to replace only half or 60 percent of income.
 
With an individual policy, you may be able to receive a higher benefit amount. For instance, some may pay up to 80 percent or even 100 percent of your income as a benefit should you become disabled.

Portability
 
One of the biggest challenges with any employer-based insurance coverage is that the protection is tied to the job. If you leave your job, you lose the coverage. And there’s no guarantee* that your new employer will have a similar benefit. An individual policy stays with you as long as you pay the premiums, no matter where you work.

Taxation
 
Group disability premiums are often paid on a pretax basis. Either the employer pays them pretax or they’re deducted pretax from your earnings. If your premiums are paid pretax, then benefit payments are taxable as income.

Individual disability insurance premiums are often paid on an after-tax basis. That means the benefit payments aren’t taxable as income.

Disability Definition
 
Perhaps the biggest distinction between group policies and individual policies is the way disability is defined. Many group policies cover only total disability or have an “any occupation” disability definition. That means you’re defined as disabled only if you can’t work in any occupation.F
 
With an individual policy, you can choose an “own occupation” definition. That means you simply have to be too disabled to work in your job, not any potential job. This is helpful if you work in a highly skilled field. For instance, if you’re a surgeon and injure your hand, you may not be able to work in your field even if you could perform other jobs. In that example, you would still get your benefit from an individual policy, but you may not get it from a group policy.
 
Ready to protect yourself against disability? Let’s talk about it. Contact us at Emerald Blue Advisors. We can help you analyze your risk and develop a plan. Let’s connect soon and start the conversation.
 
1http://disabilitycanhappen.org/disability-statistic/
 
*Guarantees, including optional benefits, are backed by the claims-paying ability of the issuer, and may contain limitations, including surrender charges, which may affect policy values.
 
Investment advisory services are offered through Emerald Blue Advisors, Inc., a registered investment adviser offering advisory services in the State of California and other jurisdictions where registered or exempted. This communication is not to be directly or indirectly interpreted as a solicitation of investment advisory services to residents of another jurisdiction unless otherwise permitted.    Nothing in this document is intended as legal, accounting, or tax advice, and is for informational purposes only."
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18185 - 2018/10/22