It’s important to have Disability coverage whether you get it from your employer, or purchase it privately. Disability insurance is your paycheck if you’re sick or disabled and can’t work for an extended period of time. That being said, the question then becomes where do you get the better deal; from your job, or on your own
The most significant difference between group and individual plans is eligibility. Because you’re an employee, you qualify for coverage at work usually on a guaranteed issue basis. However, it isn’t that easy when you apply for an individual policy. A private insurer will require you to meet stringent medical and financial criteria.
Coverage provided through a group plan offers no flexibility. If you become disabled, you are either paid a percentage of your salary, or a fixed amount each week or month. Benefits continue until you recover, or until you reach Social Security retirement age. Typically there are no cost-of-living adjustments to increase your benefits in step with inflation.
An individual policy lets you choose the monthly benefit amount (up to carrier issue limits), waiting period and maximum period of payments. You can also customize a policy to cover a specific occupation, and add cost-of-living increases.
There are some other policy features you should take into consideration when you are looking for the better deal:
- What is the insurer’s definition of disability? Does the policy define disability as “own-occupation,” which means you are disabled if you cannot perform your current job, but might be able to work in another? If it does, will it eventually change to “any occupation,” or does remain “own occupation” to age 65?
- Is it portable when you change jobs? You lose coverage provided by an employer when you change jobs, but private insurance is yours to keep no matter where you work.
- Are the benefits taxable? Premiums paid with pre-tax dollars by your employer result in a benefit that is taxable as ordinary income when you file a claim. When you pay your own premiums with after-tax dollars, any benefits received are tax-free.
- Does the policy include residual and recovery benefits? Can you receive benefits if you are partially disabled and are earning less because of it, or do you have to be fully disabled and then return to work to receive residual/recovery benefits?
A group plan limits coverage and definitions of disability, but it’s subsidized by the employer, so it will probably be less expensive. However, if your situation warrants quality and quantity of coverage, then buying your own Disability insurance is the better option.
