If you get benefits through work, there’s a chance that one of those perks is disability insurance. While you’ve probably seen something about disability insurance when reviewing your benefits, it’s understandable if you aren’t sure how much you have or how it works. Disability insurance through work is something known as group disability insurance.
Group policies have both positives and some negatives. What are the advantages and disadvantages of group disability insurance? Here we break down how group disability insurance works so that you know what questions to ask to get a better understanding of what you have and what you may still need.
WHAT IS DISABILITY INSURANCE?
Whether you’re covered by a group plan through work, have private coverage or a combination of both, disability insurance is insurance for your paycheck. According to the Social Security Administration, a 20-year-old today has a 25 percent chance of getting a disability that would cause them to miss work at some point during their career. Sure, you can take some PTO if you’re out of work for a few days. But what happens if you have to miss weeks, months or even years of work? That’s where disability insurance comes in. It will pay you a monthly benefit, replacing a portion of the paycheck you will lose if you can’t work.
HOW DO I GET DISABILITY INSURANCE?
When you get benefits at work, your package will typically include some level of disability insurance. This is a form of group disability insurance as your company is paying for a plan that covers a group of people — its employees.
You can also buy private disability insurance on your own, just like you buy car, homeowners or life insurance. In many cases, people who are covered through a group plan will buy private insurance to supplement the benefit they get through work. That’s because many group policies only cover a percentage of your salary — often just 50 or 60 percent. While that would certainly help if you ever have a disability, most people would struggle to live on just 50 or 60 percent of their income, even for a short period of time.
WHAT ARE THE ADVANTAGES OF GROUP DISABILITY INSURANCE?
The key advantage of group disability insurance is that it’s easy. You typically just get your coverage with little to no effort on your part. It’s provided to you simply because you work for your company. And in many cases, the company will pay for the benefit or provide it to you at very little cost.
Everyone in the group is covered simply because they are a part of the group, there’s no health screening required to get the insurance. For that reason, group disability insurance can be advantageous if you have a health condition or some other issue that would make it difficult for you to get private insurance.
WHAT ARE THE DISADVANTAGES OF GROUP DISABILITY INSURANCE?
The biggest disadvantage of group disability insurance is that it isn’t portable — if you leave your job, you typically can’t take your insurance with you. In some cases your new employer will offer a similar benefit. But that may not always be the case, which means you could be left without coverage for a period of time. Private policies are portable, which means that once you get coverage, you keep it no matter what happens with your career as long as you’re staying current on your premiums.
Another disadvantage to group disability insurance is that it’s typically a pre-tax benefit. That means that if you ever need to collect your benefit, you’ll owe taxes on it. If your benefit only covers 50 to 60 percent of your salary, that means you’ll probably take home something that's more like 35 to 45 percent.
While group disability insurance policies have a lot of advantages, they do have disadvantages as well. A financial advisor can help you evaluate your coverage and whether it’s worth supplementing your disability insurance with private coverage.