Group long-term disability insurance offered through member associations or an employer, while convenient, aren’t always the greatest plans. Here’s why:
1) Policy is not guaranteed renewable – Availability of Group LTD plans are reactive based on performance. If the block is not performing well (i.e. profitable to the insurance company) or if your employer decides to no longer sponsor the plan (i.e. budget cuts) then you could be left without coverage. Not a big deal if you’re still healthy and insurable. But if you’re going through a medical issue then you might be left destitute at your most vulnerable time.
2) Premiums are not stable – Group LTD plans are, again, based on performance. If the carrier realizes that your employer group or your trade association is suddenly at a higher risk, then they will file for an increase on your premium to retain profitability.
3) Definitions can change mid-claim – Getting used to that Own Occ definition? Well, after 24 months that could revert to an “Any Occupation” definition, resulting in losing your benefits if you’re unable to work in any occupation suitable for your season of life.
4) Not all illnesses are treated equally – Self-reported symptoms are increasingly excluded from Group LTD plans. If you can’t have a doctor physically confirm your disability, then you may be left shouting at the wind when it comes time for claim. Think pain like migraines or back issues, mental disorders, neurological illnesses, etc.
5) Not all income is treated equally – Bonus, commission, distributions. Is any of that income meaningful to you? If so, then you should look to insure that income with an individual DI plan since it won’t be covered under most Group LTD policies.
6) Financial underwriting at time of claim – Awesome that you got to skip the underwriting process. When did you think they were going to verify your income? At claim-time. For the less fortunate, that means that you are open to underwriting scrutiny when you are most vulnerable and in need—at time of disability. If your income is down because you took the plunge and hired a new employee, or your partner went AWOL, or you had to take care of your child or spouse’s illness, then the carrier can reduce your benefits commensurate with the income loss preceding your disability.
7) Offsets abound – Always check the “Other Income” section of your Group LTD plan. Anything listed in this category will reduce your benefits dollar-for-dollar. “Retirement income” could mean your own personal savings. Not good.
8) Portability issues – Employer-paid Group LTD plans are available only for members of a specially defined risk pool—most commonly an employer group. If you leave this group, then you lose your coverage!
9) Total Disability required – Many Group LTD contracts require eligible for a Total Disability before they pay out a Residual or Partial Disability benefit.
10) Baseline benefits only – Benefit caps of 60% of income up to $5,000, $10,000, or $15,000/month result in inadequate benefits for higher-income earners. This amount is often taxable, which means 30% or more of that 60% benefit could be taxable!
In situations where a client needs that simplified underwriting risk pool of a group in order to qualify for disability insurance, or if the client is for Group LTD or bust, then an LTD plan makes sense. However, we always recommend looking into individual disability insurance coverage over a Group LTD plan due to a better contract and more peace of mind come claim time—especially for business owners or high-income earners. See what we need for an IDI quote here.