I have Group Disability Insurance, Do I Need an Individual Policy?
Disability is a risk for everyone. It’s a fact that 35-year-olds face a 50 percent chance of suffering a disability for a 90-day period before the age of 65, and more than 370,000 Americans become disabled ever year. These are sobering facts, especially considering that 100 million Americans aren’t covered by long-term disability insurance. Disability insurance provides a financial cushion and prevents the disabled individual from suffering monetary hardships during the interim.
A disability is defined by physical or psychological impairment that prevents an individual from completing substantial gainful activity. This definition only applies to those who are working during the time of disablement.
Many employers will offer coverage through group plans, which is the most common type of disability insurance. Group disability insurance is also commonly the most affordable. While this is a definite benefit, group plans have limitations in their coverage, which is why it’s wise to supplement the coverage with individual disability coverage.
There are many benefits to having an individual disability plan in addition to your group coverage, including:
Individual policies fill the gap between your paycheck and what a group policy will cover
A loss of a paycheck due to disability could be financially ruinous, and although group coverage will cover a portion of that lost income, sometimes it’s not enough. Group policies provide a cushion, but they often won’t fill the amount one needs to survive comfortably. Individual coverage will fill some of the gap, and allow the disabled individual to focus on returning to work rather than stressing about finances.
Individual policies are portable
If an individual leaves their employer, they can carry the individual policy with them. Many individual disability insurance policies have an option to increase the benefit amount if income increases, without having to go through medical underwriting again. Also, in rare cases, an employer might decide to discontinue a group plan, which would have no effect on an individual policy. The stability of an individual insurance plan is a definite benefit over a group plan.
Individual benefits are tax-free
An individual plan may have higher premiums, but the benefits are often tax-free. Determining the long-term cost and risk of both options could mean that an individual plan will yield more financial stability during a period of disability.
Individual coverage is highly customizable
Individual disability insurance policies offer features which are unavailable through a group policy. With an individual plan, you have the option of customizing your plan to fit your needs and budget, whereas a group plan is often a “one size fits all” policy.