A comment I hear from many potential clients when reviewing disability coverage options is “I’m already covered for that through work.” However, disability insurance is not black and white – it is not like life insurance, where you are either dead or alive. Inferior disability insurance contracts can have more coverage holes than swiss cheese!
Would you want an insurance company to tell you that since you can work at Wal-mart handing out smiley face stickers that you aren’t going to be paid a dime? Of course not! That’s why it’s extremely important to understand exactly what your group policy covers, and why securing your own personal coverage may be a better idea.
The following is a list of common problems with group (employer-based) or association-based disability insurance policies:
- The definition of disability often leaves a lot of “gray area.” Will a claim be paid if you can’t work in your occupation, but can work in a different one?
- Benefits may only be paid for a short period of time, such as a 2 or 5 year maximum without any option to extend the benefits
- Premiums are not guaranteed and can be increased for the group at any time. They may also increase every 5 years based on your age
- Policy benefits are not guaranteed and can be changed by the insurance company or association at any time
- Bonuses and commissions are usually not covered
- Retirement account contributions are not covered
- There may be a cap on total benefits, such as $5,000/month. For someone making $25,000/month, that would only cover 20% of income, compared to 50% of income for someone making $10,000/month.
- Benefits are taxable when paid by your employer or paid with pre-tax dollars
- Benefits may be offset by other sources of income, lowering your total compensation
- Benefits may be offset by social insurance programs, such as Social Security Disability Income or Worker’s Compensation payment
- There may not be any benefits for partial disabilities. What if you can work half the hours that you used to? What if you can work full time, but lost most of your income because clients left your business or your skills are diminished?
- There likely is not any cost of living adjustment to keep your benefits on pace with inflation
- Mental/nervous disorder claims are limited to 24 months maximum
- Benefits are based on your most recent annual income. What if your income was cut in half because of the bad economy? Do you want to be paid benefits based on your reduced income, or based on your full earning potential?
- Days of disability to satisfy the elimination period often are required to be consecutive. Returning to work for even one day can start your waiting period over again
- If you change jobs, you may end up with no coverage all. What if your new employer doesn’t offer coverage and you can’t qualify medically for an individual policy?
- No option for lifetime coverage
When comparing the coverage offered by an employer to buying your own policy on the individual market, make sure you understand the differences in terms and conditions between them. A cheap disability policy is cheap for a reason – you generally get what you pay for when it comes to disability insurance. The difference in contract terms between two policies could potentially cost you hundreds of thousands or millions of dollars in lost benefits.
For a personalized disability insurance quote, coverage questions, or a complimentary in-force policy review, please give us a call at 1-800-571-2980 or send us an e-mail at Info@terminsurancebrokers.com. You can also complete the short form below: