Friday, May 18, 2007

Disability Insurance You Own Is Better Than One You Don't

Most people with group insurance plans have long term disability. However, they are "one size fits all" and there are situations where the policies will not pay. You are covered, but not to the extent that you think.
Here are some of the important provisions in a typical group long term disability plan and a typical individual disability insurance plan.
Can The Disability Insurance Be Cancelled?
Group long term disability plans can be cancelled by the insurance company if their claim experience is bad. Second, your employer could decide to cancel the plan at anytime. Or the company could be sold or merged etc. Or you could be fired. And if you are not in great health, how are you going to get disability insurance?
When you have your own disability insurance policy, the disability insurance company can never cancel the policy or raise the rates. You can decide when you want to alter or stop the coverage. But check exactly what is being offered.
Can Disability Insurance Premiums Be Increased?
If the insurer sees an increase in claims, it can raise the premium on any group insurance plan, including a long term disability plan. Individual disability insurance plan premiums are frozen for the duration.
Is Disability Insurance Portable?
These days you change employers frequently and you cannot take your group disability insurance policy with you. By contrast your individual disability income plan is completely portable since you own it!
Today the average person will change jobs or move locations on average 8-10 time during their lifetime and there is no assurance that any employer will offer a long-term disability insurance or indeed any insurance at all.
Any Taxation of Disability Insurance?
Group long term disability benefits are taxable as income, as you did not pay the premium. Individual disability insurance benefits are 100% tax free as you pay the premium.
Your Own Occupation Is Important For A Disability Insurance Policy
Individual disability insurance policies protect the individual in his or her "own occupation." Typical wording for group long term disability insurance, as it pertains to occupation, is: "For the first two years, the inability to perform each and every duty of your occupation; after two years, the inability to engage in any gainful occupation."

This means you are covered in your own occupation for two years. After that, if you can do any type of job, the disability insurance company will not pay.

Certain occupations can be covered forever by individual policies. For example, if a lawyer becomes disabled to the extent he or she cannot practice, but could teach law at a university, the individual policy would continue to pay the disability benefits. Moreover, the lawyer would receive both the disability insurance benefits and the university salary.

Presumptive Disability Insurance

Disabilities that are "presumptive" are those where disability insurance pays the full benefit even if the person is employed. The loss of use of two limbs in a car accident is a typical example. This is a benefit provided by individual policies, but not by group long term disability insurance plans.

Partial Disability Insurance Coverage

Over 60% of the claims filed are for partial disability.
An individual plan pays a percentage of the total benefit that represents the percentage of income lost. For example, if a person making $4000 a month with a $2400 a month individual policy benefit loses 60% of their income due to a disability, the policy would pay 60% of $3,000 or $1,440. Most group plans do not
have a short 2400 term disability insurance benefit or partial disability insurance benefit.

Disability Insurance Overall

You have seen that group long term disability income plans are restrictive, are cancelable and premiums can be changed. Benefits are taxable and any payments offset by other plans. Your occupation definition is not protected and most importantly, does not cover partial disability.

Your own disability insurance plan has what you need. It costs more, but if you have an accident or injury, it will be comforting to know your income will continue on because you bought disability insurance.