Check Your Group LTD Before You Re-Enroll
Group LTD terms are set by the employer and may vary by hundreds of thousands of dollars. The stipulation that matters most may sit in a different place in every contract. The following is not legal advice, but here is what is worth establishing on your own. For best results, retain a licensed attorney in your jurisdiction to review your certificate.
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The covered earnings definition
Terms to look for are covered monthly earnings, insured earnings, predisability earnings or monthly earnings, depending on the insurer.
Look for one thing: does it say base salary, or does it say gross income, W-2 income or total cash compensation? If your bonus is a meaningful share of your pay, that wording is the deciding factor for what your benefit pays. -
The monthly benefit cap applies first
Every plan states a maximum monthly benefit alongside the percentage. In the plans examined it ranged from $3,000 to $20,000 a month.
Multiply the maximum by 12 and compare it to what you earn. The difference between the maximum monthly benefit paid by your group plan and actual take-home pay is the amount that would need to be covered by an individual disability insurance policy to maintain existing household expenses. -
Whether the benefit is taxed
Who pays the premium decides whether the benefit is taxed. When the employer pays it, which is the ordinary arrangement for group coverage, the benefit arrives as taxable income. When the employee pays the premium with after-tax dollars, the benefit is generally received tax free.
This compounds with the earnings definition rather than sitting beside it. A plan replacing 60% of base salary does not put 60% of base salary in the household’s hands. It puts there what survives tax, and the higher the household’s bracket, the wider that difference runs. Benefits from an individually owned policy paid for with after-tax dollars are not reduced the same way. -
What happens to coverage when you change employers
Group coverage is attached to the job. It ends when the employment does, and the next employer’s plan starts over with its own earnings definition, its own maximum and, commonly, a limitation on any condition treated shortly before the new coverage began.
An individually owned policy is not attached to the job. The person insured owns the contract, so it stays in force when they change employers. -
Review your actual Group LTD policy
Do not rely on benefit portal summaries. Review the actual plan documents themselves.
The Employee Retirement Income Security Act requires a plan administrator to furnish plan documents on written request. The operative provision, 29 U.S.C. 1024(b)(4), reaches further than most people assume:
Group LTD terms are set by the employer and may vary by hundreds of thousands of dollars. The stipulation that matters most may sit in a different place in every contract. The following is not legal advice, but here is what is worth establishing on your own. For best results, retain a licensed attorney in your jurisdiction to review your certificate.
-
The covered earnings definition
Terms to look for are covered monthly earnings, insured earnings, predisability earnings or monthly earnings, depending on the insurer.
Look for one thing: does it say base salary, or does it say gross income, W-2 income or total cash compensation? If your bonus is a meaningful share of your pay, that wording is the deciding factor for what your benefit pays. -
The monthly benefit cap applies first
Every plan states a maximum monthly benefit alongside the percentage. In the plans examined it ranged from $3,000 to $20,000 a month.
Multiply the maximum by 12 and compare it to what you earn. The difference between the maximum monthly benefit paid by your group plan and actual take-home pay is the amount that would need to be covered by an individual disability insurance policy to maintain existing household expenses. -
Whether the benefit is taxed
Who pays the premium decides whether the benefit is taxed. When the employer pays it, which is the ordinary arrangement for group coverage, the benefit arrives as taxable income. When the employee pays the premium with after-tax dollars, the benefit is generally received tax free.
This compounds with the earnings definition rather than sitting beside it. A plan replacing 60% of base salary does not put 60% of base salary in the household’s hands. It puts there what survives tax, and the higher the household’s bracket, the wider that difference runs. Benefits from an individually owned policy paid for with after-tax dollars are not reduced the same way. -
What happens to coverage when you change employers
Group coverage is attached to the job. It ends when the employment does, and the next employer’s plan starts over with its own earnings definition, its own maximum and, commonly, a limitation on any condition treated shortly before the new coverage began.
An individually owned policy is not attached to the job. The person insured owns the contract, so it stays in force when they change employers. -
Review your actual Group LTD policy
Do not rely on benefit portal summaries. Review the actual plan documents themselves.
The Employee Retirement Income Security Act requires a plan administrator to furnish plan documents on written request. The operative provision, 29 U.S.C. 1024(b)(4), reaches further than most people assume: