Disability Insurance Open Enrollment
It is open enrollment season and time for people to choose their employee benefits, including choices for disability insurance. What happens to your individual disability insurance policy if you enroll in a group disability insurance policy?
Your individual disability policy is always primary. If you have a claim, your individual policy will pay you benefits regardless of any group disability insurance policy in force. Your individual disability cannot reduce your benefits paid if a group policy pays you benefits, too. However, the opposite may not hold true. If you go on claim and have a large individual disability policy. the group disability policy may reduce the amount of benefits to offset the individual disability insurance benefits paid.
There are some other considerations:
It is important to maintain an individual disability insurance policy for several reasons:
- An individual disability insurance policy is portable. If you ever leave your employer, you may take your individual disability policy with you. Most group policies are not portable. If you leave your employer, you may lose those benefits. By having an individual policy. you have flexibility. If you have an adverse change in health, you will have benefits. If you do not have an individual disability policy, you may need to stay at your employer to retain disability benefits.
- If your employer is paying the premiums for the group policy, the benefits will be taxable to you at the time of claim. An individual policy is nontaxable as long as you pay the premiums with after tax dollars out of a personal account.
- Most group policies have more restrictive definitions of disability. Individual policies will cover you if you can’t work in your own occupation. Most group policies will only pay benefits if you are totally disabled and not working.
- There are gaps between a group policy and your take home pay, especially if you earn more than $150,000/year. Most group policies will pay 60% of your salary (not bonuses) to a maximum level of $10,000/month. The higher your income, the lower the replacement value. Having an individual policy will bridge that gap.
The best solution is to have an individual policy along with a group policy. There are limits on the amount of total benefit you may retain. This is based on your income and the group disability policy in force.