No one ever thinks they are going to have a disability in their life. Unfortunately, it does happen, and the results can be difficult to deal with when it happens to you or a family member. Group disability insurance is set up to help in case this ever happens. Many employers have a group disability insurance provider and many of the plans are designed to replace 60 percent of base salary to a monthly maximum outlined in the policy. Many of the group disability insurance providers will cover the 60 percent of base salary and up to a maximum of $5,000 dollars a month. Bonus income and commission income is rarely covered.
Long term group disability insurance is taxable to a worker who goes on claim assuming the employer was paying the premiums for the coverage. The only way to make up for lost taxes during a claim is to purchase an individual disability insurance policy that is layered on top of your group disability insurance before the claim ever happens. You set yourself up in the best way because, by having group disability insurance and individual insurance, you will receive the maximum income replacement available in a group disability insurance claim.
There is also comfort in knowing that, if your employer drops the group disability insurance or if you left your position, you would have your own disability insurance. This also allows you to be placed in a position where you can convert a large percentage of your group disability insurance (LTD) into your supplemental group disability insurance plan when you leave your current employer.
For those of you with an income of more than $100,000 dollars a year, your coverage will be harshly underinsured when it comes to your company's group disability insurance. Normally, for any company, the group disability insurance maximum is only around $5,000 a month. Because of this circumstance, it is wise to also get individual coverage on top of your company's group disability insurance. There are downfalls to long term group disability insurance. The benefits are taxable if your employer pays the premium. It has more restrictive definitions within the policy. Many of the long term group disability insurance plans have a two year maximum on drug, alcohol, mental and nervous disabilities. There are also no rate guarantees.
The solution is to purchase a supplemental plan in relation to your group disability insurance. Even with a small extra individual disability plan, it will lock in your insurability for the rest of your working years and provide you with a higher income replacement if you should experience a disability claim. By having the group disability insurance along with the individual coverage, if you should ever have a need for the insurance, it will provide up to 70 percent of your income after taxes. By being covered in both plans, even if you were to leave your job, you can have peace of mind knowing money will be there. Make sure the group disability insurance plan and your individual plan will allow you to do this. There are companies out there that can provide you with this security.
By: Emily Thomas