While employer provided disability insurance is a great first layer of income protection, there are some important drawbacks to be aware of.
Here is an overview of the pros and cons of group disability insurance:
Benefits of group disability insurance:
1. It's easy to get
All you have to do to qualify for a plan is fill out a form and check a few boxes. That’s it. No underwriting. No medical exam.
2. It’s cheap
Many employers pick up the cost for group coverage, but even if you have to pay for it yourself, the premiums are a fraction of what an individual policy would cost.
3. You can't be turned down because of your health
You don’t have to qualify medically to get it. They offer the coverage to everyone in the group without a medical exam and regardless of your medical condition.
Drawbacks to group disability insurance:
1. Group disability plans usually payout a fraction of your actual income
Group benefits are reduced by “offsets”: An offset is any income you receive from another source while on claim (Social Security, Workers Comp, income from a new job, etc.). Offsets reduce the monthly benefit the insurance company pays to you. It is not uncommon for group disability benefits to be reduced by more than 50%.
2. Group disability plans often have a restrictive definition of disability
Group disability insurance typically uses a more restrictive definition of disability than individual policies. To qualify as disabled under many group plans, you may need to be unable to perform ANY occupation—not just your medical specialty.
This means that even though you’ve dedicated your entire career to becoming a physician, the insurance company could determine that you’re capable of teaching, consulting, or performing other work—and deny your disability benefits entirely
Even policies that start out with an “own occupation” definition may switch to a more restrictive definition after two years, making it significantly harder to qualify for continued benefits if you can work in any capacity.
3. Group disability plans are not portable
This could pose a problem if at some point in the future you choose to work for a different company that doesn’t offer group coverage. If you’ve had a health change you might be unable to qualify for another disability plan. Owning your benefits through individual disability insurance provides you with more flexibility and security.
4. Your employer or the insurance company can change or cancel your coverage at anytime
5. Group disability plans limit your legal rights
Group carriers are protected by an employment law called ERISA (employee retirement income security act) that shields them from most lawsuits. The downside is that if your claim is unfairly denied, you have little recourse to contest the decision.
For more on group disability, check out this video by Ben Glass. He is an attorney specializing in helping disabled people collect on their employer’s group disability plans. It’s called “Robbery Without a Gun”
If your employer provides group disability insurance, you may want to consider adding an individual disability plan on top of your group coverage as an extra layer of protection. By doing this, the two policies can work together to better protect your income.
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