Disability insurance: Individual versus Group
Whether to purchase an individual or group disability insurance policy is much dependent on your circumstances, personal financial conditions and the benefits offered through each policy.
Before purchasing any insurance types, its crucial to spend some time comparing the pros and cons so that you can choose what is most suitable for you. Many people seem to insure their material assets such as cars, house or equipment, however they forget about their ability to perform tasks and annual income, which are two of the most important values. Keep in mind that no matter how well your health conditions are going, a disability insurance is compulsory and a good way to support you in the event of injuries or even debts.
- Differentiate the two types
- Individual disability insurance
- Definition: Individual disability insurance policy offers protection against injuries as well as serious illness. This policy is often referred to as a private or a personal one.
- Group disability insurance
- Definition: This term is used to call a policy that provides coverage for a member of a group who no longer has the ability to perform his or her work due to disability. Coverage provided replaces lost wages and income for a certain period and with a maximum income benefit of about 60 percent of earnings before disability.
- Individual versus Group disability insurance
Here is a deeper investigation into these two types of insurance
- Benefits offered when an individual policy is purchased
- Providing evidence of good health
The insurance companies or organizations can decide whether or not to insure you. As a result, the insurer can be choosy with whom they offer coverage to. The good news is that it allows the company to be more liberal with policy provisions, providing you with better policy definitions.
Should you leave your employer, you can carry your individual policy with you and increase it as your income increases.
Coverage can’t be cancelled by the insurance agent as long as you pay your premiums on time.
Benefits usually means tax-free income during disability if you pay with personal dollars.
- Protecting your insurability
If you are to experience an adverse change in health, you can increase your individual or supplemental policy in the future without worrying about losing group benefits in case you leave your current employer.
- Benefits offered in a group disability insurance policy
- Plan design flexibility: In many cases, employers can elect a plan design that fits their budget and works best for their employees. For example, an employer may choose a guaranteed issue plan, giving employees the option to purchase coverage regardless of their current health conditions.
- Lower premiums: Group rates tend to be lower comparing to individual rates.
- Potential portability: Depending on the plan design, insured employees may have the ability to take their coverage with them if they leave the company. However, in many cases, benefits are out of employees’ coverage once they have lost or changed their jobs. This muchly depends on what policy they choose.
- Flexible premium payment: Premiums are paid either by the employer or the employee, or even a combination of the two, using pre-tax or after-tax dollars.
- Tax deduction: You are able to take pre-tax company-paid premiums as a business tax deduction.
- Recruitment and retention tool: Having group disability insurance in your benefits program helps in attracting and retaining quality employees. This is resulted from the fact that numerous job applicants set their top priority on what kind of insurance policies are offered in the working environment.
- Comparison: Group versus Individual
- Expenses: Group coverage has the tendency to be dramatically cheaper than individual coverage. Doubtlessly, the simple comparison of group to individual disability insurance is not fair because of the differences addressed but group policies are much friendlier on the budget.
- Underwriting – It is the lack of underwriting that makes group policies more favorable as most group plans provide guaranteed coverage at a set price based on age. This is considered as a huge benefit for people who would have trouble purchasing affordable coverage via an individual policy because of poor health or other conditions. The lack of underwriting is also beneficial for the insured who participate in “extreme sports” such as snowboarding, rock climbing, or mountain biking as these activities would result in higher premiums in individual policies.
- Convenience: Along with the limited underwriting, group insurance is often provided without any of the exams or lab testing required for an individual policy. Group coverage usually requires only a few simple questions. Moreover, group policies are often automatically billed each month whereas individual policies apply an additional charge for the convenience of automated monthly billing.
- No Gender Discrimination: Individual policies are more expensive for women than men as they are based on a higher probability of claiming disability in the future. Group LTD insurance charges identical premiums for both women and men, providing a small benefit to women purchasing group coverage.
Nonetheless, group insurance still has several drawbacks such as:
- Total disability is compulsory:
- Potential Cancellation
- Benefit Limitations