Why “I’m Covered at Work” Doesn't Work for Group Disability Insurance
Some people we speak to are initially hesitant towards individual long-term disability insurance because they think they’re covered by a group policy at work. The more they examine the facts though, the more they find that group coverage can range from weak (at best) to non-existent (at worst).
Here are the top five reasons your employer’s group disability plan may not provide the coverage you need:
1. Workplace disability insurance is sold on premium, not benefits
Employers are focused on the bottom line, naturally. This means that many employers will go with the lowest premiums, rather than with the best plans.
For this reason, many workplace plans do not have a robust definition of when disability occurs. For example, your workplace plan may have opted for a policy that only pays benefits if you cannot work at any occupation. This means that if you can’t work in your specialty of medicine, but the insurance company determines you have the ability to earn an income in a different occupation, they can deny your benefits.
Most of the doctors we work with, though, much prefer a plan that pays benefits if they cannot continue working as a doctor, in their own specialty – that is, most physicians tend to prefer an own occupation definition of disability, rather than an any occupation definition, when they understand the benefits.
Other times, workplace policies will skimp on residual benefits, exclusionary periods, cost of living increases, or other vital protections, just to show a lower premium in a spreadsheet.
The lower premiums might make the hospital CFO happy, but it doesn’t necessarily match the real-world needs of a physician and his or her family.
2. You can’t take coverage with you
Chances are, at some point in your career, you’ll change employers. But if you rely on a group plan for disability protection, you will find your coverage is rarely portable. If you’re joining an organization with a robust disability group plan, fine. But if you want to go into private practice, or join a practice that doesn’t offer group disability coverage, you will have to find and qualify for an individual disability plan.
It may be too late. A lot of things can happen, and even if you aren’t currently disabled, you may have developed a medical condition that makes it impossible to get disability insurance at any price. The only way to maintain control and ensure you can keep coverage in place for your entire career, should you choose, is to own your own disability policy.
3. Your employer may cancel coverage
Disability is not like major medical. Other carriers don’t have to pick you up when you have a pre-existing condition. If your employer decides to cancel coverage, you will have to pass medical underwriting to get your own policy.
Again, you may not be able to do so. If you’ve put on weight, had an injury, hurt your back, have high blood pressure, or you’ve developed any kind of potentially disabling injury or illness, you may have to pay much higher premiums, or may not qualify for coverage at any price.
4. If your employer pays the premium, your benefits are taxable. If you pay your premiums, benefits are generally income tax-free
This part most people understand right away. No, you generally can’t deduct premiums for a personally-owned disability policy. But most people would much rather have a tax-free benefit when it really counts!
5. Group plans only cover a fraction of total income
Even though group plans say they cover 60% to 70% of salary, after offsets and deductions, the average payout is usually less than 1/3 of total income.
Here’s why:
- The percentage is calculated on base salary only. Other income like bonuses and call stipends are usually not included.
- The payout is reduced by “offsets”. Offsets are benefits or income you receive or are entitled to receive from other sources as a result of your disability. Typical offsets are:
- Social Security
- Workman’s comp
- Unemployment benefits
- A settlement or judgment compensating you for your loss of income
- Benefits paid to you by another group or association plan
- Any earned income while collect benefits
- As mentioned above, any benefits received are taxed as ordinary income
Look at the language
Given this, it makes sense why most group disability contracts include this statement in their policy language: “What if subtracting deductible sources of income results in a zero benefit? – The minimum monthly payment will be $100.00”
How financially secure does that make you feel?
Add it all together, and the case for owning your own policy is overwhelming – especially given the unique physical demands of a career in many medical specialties.
To get started, or just to see what you can qualify for, give us a call, or just key in some information for a preliminary quote.
Remember – you have to be in good health for this. So get started today, because anything can happen tomorrow, and you may not have the same choices available to you.
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