Many physicians make the mistake of relying solely on group long-term disability insurance coverage. It’s an easy mistake to make, considering that group plans are cheaper than individual long-term disability insurance policies and easier to obtain. Plus, since many medical professionals don’t anticipate ever becoming disabled, they believe having group insurance is more than enough.
But if you unfortunately have an injury or illness that limits your ability to practice medicine, you may find out the hard way that your group coverage will not adequately provide for your needs.
Here are five reasons you shouldn’t rely solely on group disability insurance:
1. Group policies have contingencies
Your ability to have coverage through a group plan is contingent on being employed by the company or a member of the organization sponsoring the plan. If that changes, you lose your coverage.
There is also usually an annual renewal process for group plans and there is no guarantee that the employer, organization or even the insurance company will renew the group coverage. And at any time, your rates can increase under group insurance.
Individual disability insurance policies are typically non-cancelable and guaranteed renewable. This enables you to renew it at the end of each premium term until its expiration or termination date. During this time, the insurer cannot change any part of the policy, including the premium amount, even if you change jobs for a lower income. The insurer cannot cancel the policy for any reason, either.
2. Group policies typically limit the definition of disability
Because they are rarely underwritten, group disability insurance policies have stricter definitions for total disability. Typically, you will not be considered disabled and will not receive benefits if you are able to work in some kind of capacity, even if your injury or illness severely limits your ability to practice your medical specialty.
On the other hand, most individual physician disability policies have own-occupation provisions — either in the base policy or as a rider — that pay benefits if you can’t perform the duties of your medical specialty, even if you’re able to work in another field.
3. Group policies limit the amount you can receive
If you are deemed disabled under your group policy coverage, it typically has pre-established caps across all employees. In addition, your benefits may be limited to a certain number of years. Individual policies often have larger benefit options and can pay them up to and even beyond age 65.
In addition, group policies may not cover residual disability, which occurs when you can still work in some capacity but have endured a loss of income due to an injury or illness. Other group plans require a loss of income of at least 20 percent before benefits are paid. This is problematic for the majority of disabilities that begin as partial disabilities before the condition worsens to a total disability.
Furthermore, group plans typically do not provide the option of increasing your coverage at future intervals, nor do they offer cost-of-living adjustment riders to ensure that benefits keep pace with inflation.
4. Group policies can limit your ability to fight claims denials
Employer-based plans are often governed by the Employee Retirement Income Security Act (ERISA). This is a longstanding federal law that governs employer-sponsored pensions and other retirement plans, as well as health and disability benefits. It’s designed to protect employees by establishing minimum standards and providing a way for employees to claim any benefits they believe were unjustly denied by their employers.
The trouble with ERISA when it comes to disability benefits is that the federal law preempts state law. According to legal experts your rights in ERISA disability claims are more restricted than insurance claims governed by state laws. You would have to go through a complicated appeals process before you can bring a case to court. This gives more advantage to insurers and employers in a benefits dispute.
Furthermore, given that group benefits only pay a portion of your income, you would exhaust much of your benefits just paying legal fees to get through the process if a claim is initially denied.
5. Group policy benefits can be limited by offsets and taxes
Your group policy may require a benefits recipient to also file for Social Security Disability Insurance (SSDI). The benefits you receive from SSDI will, in most cases, offset (i.e. lower) the benefits you receive from your group policy. Employer group plan benefits can also be offset by other group coverage, such as disability insurance purchased through a professional association.
Group plan benefits may also be subject to income taxes. If the employer pays the insurance premium, those payments are typically paid with pre-tax money. Therefore, the disability benefits are taxable to you, including federal, state, and local taxes. So while your employer received a tax break for providing the insurance, you will pay taxes on the benefits.
Individual disability insurance premiums, on the other hand, are not paid on a pre-tax basis. Therefore, the benefits from those policies are received income tax-free.
Participating in a group disability insurance plan is a good idea as you can supplement your coverage at a reasonable cost. But you should also own an individual policy to ensure that you have adequate benefits in the event you need them.