Group Disability Insurance: False Sense of Security

Posted on behalf of Rizk Law on Dec 09, 2013 in Insurance Issues

Increase in Group LTD Policy Rates Inevitable

Most employer paid group long term disability plans guarantee the rate for a period of time. After that guaranteed period, they are free to raise the rate to the employer as needed. In these situations, employers can pass that increase on to their employees.

Individual v. Group Disability Insurance

Thinking that they might be able to get the same coverage for less money on their own, group long term insurance policy holders may decide replace their group policy with an individual one. In reality, there is not a good disability insurance policy on the market for an individual that has a lower cost than group coverage available through an employer. On the other hand, purchasing an individual policy is usually the best way to avoid a draconian, pro-insurance federal law known as ERISA.

Group Policy Total Disability Definition Good for Only Two Years

A typical group long term disability insurance policy should be considered a two year benefit plan because the definition of total disability is only good for two years. It will have a “Modified Own-Occupation” definition of total disability for the first two years of a claim, but after two years the definition becomes “gainful occupation”. This is the reason why many people find their claim terminated under a group policy.

Lack of Portability with Group Policy

It is extremely rare to find a group LTD policy you can take with you should you change employers or become self-employed. In contrast, you own an individual LTD policy, and the coverage remains in-force as long as you pay the premiums, regardless of how many different companies you work for, including becoming self-employed. You can take this policy with you to any new employer or new occupation without updating coverage.

If You Decide to Go It Alone

If you decide to replace your group LTD policy with an individual one, you need to determine if it is a pure “Own Occupation” contract, where the definition of total disability cannot change. Remember, a policy that pays you when you need it is a much better deal than the one that costs a lot less and is not there when you need it.