360° Coverage : When Your Employer's Group Disability Policy Might Not Cut...

2 Updates
When Your Employer's Group Disability Policy Might Not Cut It
Photo Credit: Forbes Business

When Your Employer's Group Disability Policy Might Not Cut It

Mar 26 2014, 12:29pm CDT | by

Once you sign up for your company’s group disability insurance, you may be tempted to cross it off your to-do list and forget about it.  However, there are cases where having a group policy may not...

Filed under: news

 
 
 

29 weeks ago

When Your Employer's Group Disability Policy Might Not Cut It

Mar 26 2014, 12:29pm CDT | by

Once you sign up for your company’s group disability insurance, you may be tempted to cross it off your to-do list and forget about it.  However, there are cases where having a group policy may not be enough. Getting a supplemental policy to fill in the gaps could be critical to protecting your retirement plans if a long-term disability hits.

 A group disability policy has its advantages, of course.

First, it’s convenient. Your company does most of the legwork and selects a policy for its employees. Employers either provide it as a free benefit or a voluntary benefit that you pay for through payroll deduction, which makes it easy for employees to get basic coverage. Group policies are often “guaranteed issued” for all employees of the company—usually, employees can enroll upon being hired without submitting to a medical exam or answering any health-related questions. For someone with health issues who wouldn’t qualify for—or couldn’t afford—an individual policy, a group policy is a valuable benefit.

There are still instances where a group policy falls short, and it may be a better bet to supplement with your own individual policy. Here are three:

1) The definition of disability may limit your benefits.

How does your policy define disability? Is it not being able to perform the duties of your “own occupation,” “gainful occupation” or “any occupation?”

The definition makes a big difference. The best disability policy replaces a percentage of your salary (usually somewhere around 60% or close to 70%) for the benefit period of the policy (often 5 or 10 years, or until age 65 or 67) up to a maximum salary cap (such as $5,000/mo) if you cannot perform your own occupation. Take, for example, a pianist with a career-ending hand injury who has a disability policy with an “own occupation” definition. The disability policy would pay a monthly benefit for the length of the benefit period because he couldn’t perform his regular occupation—playing the piano.

Some policies have definitions that change. Group policies often start with an “own occupation” definition for the first two years of the disability benefit period, and then shift to “gainful occupation” or “reasonable occupation.”  In this example, our injured pianist would need to seek a position in music or a related field that didn’t involve the use of his hand (I assume he’d have to scratch teaching off the list.)  If he is able to perform any meaningful work that he’s qualified to do that replaces somewhere between 60% to 80% of earnings, he might not qualify for further disability benefits.

With this type of group policy, if our 40-year-old pianist made $50K per year and had a hand-crushing injury, the policy would pay out about $2,900 a month for two years (using a 70% of gross salary benefit). After that, the policy type would shift to “gainful occupation.” From age 42 to 67, the pianist would miss out on about $870,000, because he would presumably be able to obtain “gainful employment” that didn’t require the use of his injured hand.  Granted, he’d have income from whatever employment he engaged in but it still could fall well short of what he could have earned from his job (pre-injury) or received from an “own-occ” disability policy.

You can calculate your own earned income equivalent at www.disabilityhappens.org.

2) When your employer pays the premium, the monthly disability benefit is taxable to you.

When you pay the premium, the monthly disability benefit is tax-free. This might seem like a minor point, since if your employer covers the premium, you are getting a free benefit. However, if you are in a high tax bracket or live in a state with high taxes, it might be better to pay the premiums yourself.

Here is an example. A couple living in California earns $160K per year—$80,000 each. They need both incomes to pay their mortgage and cover household expenses. Then the wife becomes disabled. Her gross income was $6,667 per month, and her disability benefit at 70% of salary is $4,667 per month. That sounds perfectly doable, until the I.R.S. and the State of California could tax the disability income at rates of 25% and 9.3%, respectively.

Disability will only pay about 60% – 70% of income in the first place, and then, because the benefit is taxable, it can be reduced by an additional third.  An employee with an employer paid group plan who is concerned taxes may eat into future benefits may consider getting an individual policy to supplement or “layer” on top of the group disability benefit to fill in the gap that income taxes may leave. (*This is not tax advice. Check with your tax advisor on any tax related issues.) 

Resource – LifeHappens.org

3) Employer-sponsored group policies usually aren’t portable.

As I mentioned earlier, one key advantage of a group policy is that it is often “guaranteed issue.” At first enrollment, for many group policies, there is no underwriting, so someone who normally wouldn’t qualify because of health problems could still get a policy.

Unfortunately, many times group disability isn’t portable, so if you left your job for a better opportunity, you’d lose your coverage. Your new employer might not offer disability insurance. So while you are healthy, consider putting your own individual policy in place.

Resource – Council for Disability Awareness – DisabilityCanHappen.org

If you’re not sure whether it would be better for you to take out an individual policy, review what you have through your job—it’s easy to do. Check the policy type (own occupation or gainful occupation), if and when it changes, the maximum monthly benefit amount, and the length of the benefit period. Review the salary definitions to see if your group policy includes commissions and bonuses. Also look at your paycheck stub to see if you are paying monthly premiums by payroll deduction.

If you don’t like what you see, consider getting an individual policy even if you’re on a group plan.

Ten Steps To Get Your Retirement Back On Track

Nancy L. Anderson, CFP ™ is a Certified Financial Planner ™ professional in Park City, Utah and a blogger for Deer Valley Ski Resort.  Follow Nancy on FacebookTwitter

Source: Forbes Business

 
Update
2

7 weeks ago

Khazanah throws MAS RM6b lifeline

Aug 29 2014 5:01pm CDT | Source: Business Times Singapore

August 30, 2014 1:15 AMKHAZANAH Nasional will inject RM6 billion (SS$2.4 billion) over three years to resuscitate loss-making Malaysia Airlines (MAS) under a recovery plan that includes even an Act of Parliament. Other key moves are migrating its operations, assets and liabilities to a new company (NewCo) and slashing the workforce of 2 ...
Source: Business Times Singapore   Full article at: Business Times Singapore
 

 
Update
1

7 weeks ago

MAS posts loss of RM307m for Q2

Aug 28 2014 5:00pm CDT | Source: Business Times Singapore

August 29, 2014 1:13 AMMALAYSIA Airlines (MAS) registered a loss of RM307 million (S$122 million) for the second quarter to end-June, but warned of worse to come in the second half when the "full financial impact of the doub ...
Source: Business Times Singapore   Full article at: Business Times Singapore
 

 

Don't miss ...

 

<a href="/latest_stories/all/all/30" rel="author">Forbes</a>
Forbes is among the most trusted resources for the world's business and investment leaders, providing them the uncompromising commentary, concise analysis, relevant tools and real-time reporting they need to succeed at work, profit from investing and have fun with the rewards of winning.

 

blog comments powered by Disqus

Latest stories

'Time to rename medicines for mental health'
London, Oct 20 (IANS) In order to remove confusion for patients who could be prescribed drugs that appear to be unrelated to their condition, the world's major psychiatry organisations are proposing to completely change the terminology of the drugs used in mental disorders.
 
 
How to prevent brain damage after trauma
New York, Oct 20 (IANS) A treatment to prevent the body's immune system from killing brain cells can reduce the brain damage caused by head injuries, a study co-authored by an Indian origin researcher has found.
 
 
Heart attack ups depression risk in women
London, Oct 20 (IANS) Women are at a higher risk of developing anxiety and depression after a heart attack than men, new research shows.
 
 
Vitamin B12 could detoxify pollutants
London, Oct 20 (IANS) Looking at how certain organisms manage to lower the toxicity of pollutants, researchers have discovered that vitamin B12 could be the key to combating pollution.
 
 
 

Latest from the Network

1,074 new dengue cases in Chinese province
Beijing, Oct 18 (IANS) China's Guangdong province has reported 1,047 new cases of dengue fever, health authorities said Saturday. Six people have already died in Guangdong -- five in Guangzhou and one in adjacent...
Read more on Business Balla
 
Blake Lively 'always' wanted to be mum
Blake Lively has ''always'' wanted to be a mother. The 27-year-old actress is expecting her first child with husband Ryan Reynolds and she admits she's been dreaming of this moment since she was a youngster. Speaking...
Read more on Celebrity Balla
 
Kris Jenner 'torn apart' by Bruce's new relationship
Kris Jenner feels ''torn apart and angry'' that Bruce Jenner is dating her former assistant. The 58-year-old matriarch split from the 64-year-old Olympic gold medalist last October following 22-years of marriage but is...
Read more on Celebrity Balla
 
Cheryl Fernandez-Versini won't move to France
Cheryl Fernandez-Versini doesn't want to move to her husband's home country of France. The 'X Factor' judge, 31, who comes from Newcastle, is adamant she won't be relocating any time soon to suit her new spouse Jean-...
Read more on Celebrity Balla
 
Lance Bass sets wedding date
Lance Bass has set a date for his wedding. The former *NSYNC singer and his partner Michael Turchin, who have been dating for two-and-a-half years, are to tie the knot on December 20, 2014, a representative for the...
Read more on Celebrity Balla
 
Nepal avalanche toll reaches 39
Kathmandu, Oct 18 (IANS) At least 39 climbers died while hiking on a key Nepali route after it was hit by a major snowstorm and avalanches earlier this week, BBC reported Saturday citing officials. Over 350 stranded...
Read more on Politics Balla
 
Jake Gyllenhaal says society is complicit in 'nightcrawling'
Jake Gyllenhaal says almost everybody in society ought to relate to his new movie 'Nightcrawlers'. The eagerly-awaited film concerns those people who monitor police scanners and then race to crime scenes to film eye-...
Read more on Movie Balla
 
India eves look for first win in AFC U-16 qualifiers
Dhaka, Oct 18 (IANS) India will hope to register their first win of the 2015 Asian Football Confederation (AFC) Under-16 Women's Championship qualifiers when they take on hosts Bangladesh in a crucial encounter at the...
Read more on Sport Balla
 
Moyes mulling return to management
London, Oct 18 (IANS) Former Manchester United manager David Moyes said that he is ready to revive his managerial career six months after being sacked by the 'Red Devils'. "I am ready to return. I have enjoyed the...
Read more on Sport Balla
 
Ebola fears loom over Ghana hosting AFCON
Accra (Ghana), Oct 18 (IANS) The Ghana Medical Association (GMA) cautioned the government Saturday against hosting the 2015 African Cup of Nations (AFCON), despite a request by the Confederation of African Football (...
Read more on Sport Balla