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Group Disability Insurance vs.
Individual Disability Insurance |
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Non-cancellable vs. Guaranteed renewable.
Short term disability insurance and group long term disability insurance are
normally guaranteed renewable whereas individual disability income insurance
can be guaranteed renewable and non-cancellable. This can be a critical
difference and is one reason why disability insurance quotes for disability
income insurance policies are usually higher. Guaranteed renewable allows the
insurance company to change the disability insurance premiums, but not the
terms of the policy and will renew the policy as long as premiums are paid on a
timely basis. The premium increases tend to occur every 3-4 years. While the
disability insurance company cannot single out any one policyholders' policy
and increase that policy's premiums, it can use one of several criteria to
increase rates. For instance, it can increase premiums by policy form, state
and occupation class with prior notification. We recommend guaranteed renewable
and non-cancellable DI policies to our clients. This means that the terms and
premiums of the policy cannot be changed by the insurance company. This assumes
that all underwriting information is accurate and truthful and that premiums
are paid on a timely basis.
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Pre-issue underwriting vs. Post claim underwriting
Short term disability insurance and group long term disability insurance do not
normally require medical exams or attending physicians' statements; however,
upon filing a claim, there is a good possibility that the benefit could be
limited due to pre-existing conditions. In other words, the group LTD might
only provide a benefit for 6-12 months. As individual DI is very thoroughly
underwritten before the policy is issued, it would generally require fraudulent
misrepresentations of the insured to interfere with the benefits being paid in
full, especially after 2 years.
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Differences with respect to "Own Occupation"
If a group LTD policy offers own occupation, it generally limits the own
occupation benefit to 2-5 years. A good individual DI policy can often offer
own occupation until age 65 or even lifetime. The best own occupation coverage
can allow for benefits to be paid if you can't work in your own occupation,
even if you are at work in some other capacity.
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Cost of Living Adjustment
Group LTD normally offers no cost of living adjustment benefit. This means that
if you are on claim for many years, the dollar benefit you receive may remain
level, but inflation has the ability to erode your benefits' purchasing power.
If you are in a long-term claim situation, having no cost of living increases
could be essentially the same as having a benefit that diminishes over time.
For example, using a 3 percent rate of inflation, a dollar today will only be
worth about 80 cents (in today's dollars) in 7 1/2 years. This would be like
having the benefit reduced by 20%! Cost of living benefits found in good
individual DI policies can help offset the erosion inflation has upon the
benefit.
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Residual (partial) disability benefit
Group LTD is often very restrictive when it comes to residual or partial
disability. You may find that an group LTD policy will only pay, for example, a
50 percent benefit for a six month period. A good individual DI policy can
provide you with a much larger percentage for the entire benefit period, which
could be many years.
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Possibility of losing coverage in a manner that is beyond your control
Group LTD is a benefit that is purchased by a company for its employees. If the
employer were to drop the coverage or you are terminated or resign, you can
lose your group LTD. Furthermore, you may have developed pre-existing
conditions that could limit or preclude you from getting any disability
insurance benefits.
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Limits of group LTD could sometimes leave you underinsured.
Sometimes group LTD provides a percentage of salary up to a limit. Often, this
limit is $5,000 per month. This may not be sufficient for many individuals. In
addition, if you elect to pay your group LTD premiums with before tax dollars,
the benefit will be taxable.
You may be able to apply for an individual disability income insurance policy,
even though you have short term disability insurance and group long term
disability insurance. However, the amount of new disability insurance you are
able to get will be subject to a company's Issue and Participation limits. If
you are able to purchase DI, some companies offer a rider that may allow you to
increase your benefit with no medical underwriting in the event you lose your
group LTD as a result of termination of your employment or termination of your
group LTD coverage by your employer. For more information,
contact us.
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Policy Forms 0100, 1100 and 2100 are underwritten and issued by
Berkshire Life Insurance Company of America, Pittsfield, MA, a wholly-owned
stock subsidiary of The Guardian Life Insurance Company of America
("Guardian"), New York, NY. Policy Forms NC111 and NC112 in CA are provided by
Guardian. Product provisions and features may vary by state. |
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