Although many employers will offer group disability plans, this doesn't mean that workers get the best protection. Some may want to consider adding supplemental disability insurance to extend coverage. When might this be a good idea?
What Does a Group Disability Insurance Plan Cover?
It's not enough to assume that a group plan will automatically give the right benefits to every individual. Those that are covered by employers may want to check out the coverage that is offered to ensure that it is the best fit for potential future needs. Some group plans, for example, may:
- Limit how much income is covered by the plan by only factoring in base salary and not bonuses.
- Cap the length of time that payments can be made.
- Not offer 'own occupation' coverage for more than a set period of time.
- Offer limited definitions of full or partial disability.
- Not give the option of cost of living increases over time.
If an employer is paying into a group plan, then the worker may also be taxed on any payments made in the event of a claim. These plans are also generally not portable so, if an individual gets a new job, they may lose their coverage altogether. In some cases, however, it may be possible to convert an employer's coverage into an individual policy.
What is a Supplemental Disability Insurance Plan?
A supplemental plan can allow the individual to add extra or missing benefits to their employer's disability insurance coverage. This could, for example, allow the addition of:
- Additional income to factor in bonuses.
- Extended payment periods.
- Coverage to compensate for any restrictions or exclusions (i.e. disability definitions, COLA and own occupation coverage).
Private supplemental plans that are funded by the individual may give tax-free payments in a claim which could be useful. They are not limited to a specific employer so will go with the policy holder even if they change jobs in the future.
It is also worth remembering that it may become harder to get individual disability coverage at an affordable cost as people get older and their health status changes. The early addition of supplemental coverage may, at least, give some protection in later years even if the worker loses a group plan by changing job and has problems finding a replacement individual policy.
In some cases, the benefits offered by a group plan may suit the individual well enough and they will not see the need to boost coverage. If there are concerns, however, that a policy will not meet needs, then it may be worth considering adding supplemental disability insurance.
Those that are not covered by a group plan or that want to learn more about how disability insurance works may find the following articles useful:
- A Guide to Disability Insurance: Does Coverage Replace Income?
- Disability Insurance: Do Workers Need to Buy Individual Coverage?
- Short Term vs Long Term Disability Insurance & Income Replacement
Carol Finch - Carol Finch is the Topic Editor for Retirement Planning, Budgeting, E-Commerce & Technical/Business Writing on Suite101.
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