Group And Individual Disability Insurance The Differences
Many times when people find that their company LTD just went up in price they will seek out prices for an individual disability insurance plan
thinking that they are one and the same. They will want t to know if the deal they are getting at work is a good one. The answer to that question every time is that it all depends on your definition of a good deal.
Sometimes there is a good deal on the price and sometimes there is a good deal on the coverage, but the two rarely are said about the same plan. Cheap policies are not usually very good and very good policies are not usually very cheap.
Often people get woken up to this fact when their LTD at work shoots the price of the premium through the roof. It creates a sort of shell shock. But most group plans will start out with a lower rate for a set amount of years and then after that they are free to jack up the rates as they see fit. When this happens the employees will often pass the payment through to the employees.
While an employee who was getting coverage for free may not have cared about the cost, that same employee will bark up a storm when $20 per paycheck is coming out. Even if the employee was paying all along and then sees an increase it is likely to cause questioning.
In both cases the employee may seek out an individual plan to sort of test the waters a bit thinking that if they have to pay something they want to pay less. The problem is that there is no individual plan that will cost less than a group LTD plan. As you can already feel there are going to be differences in the two types of plans but if you are looking for a cheaper route with an individual plan you are out of luck.
The natural reaction after learning that an individual plan will cost much more than the group LTD is the thinking that the group plan is a better deal because it is cheaper. This is false. The only way this thinking pans out is if they never get disabled to which they would have paid far less for coverage through the years. But if they are one out of every seven Americans who become disabled for more than 5 years then that ‘good deal' just got really bad in a big hurry.
When you look at LTD and individual disability insurance, or IDI, you have to look past the price tag. As with many things in life, you really do get what you pay far. The reason that polices are more expensive is due to the fact that they will pay more benefits in more situations. But the cheaper group plans have many holes in them and will not pay benefits where an individual plan will. Add to this the fact that most group plans provide adequate service for two years but then fall by the wayside and you begin to see why you pay more for IDI.
Here are some other factor that separate LTD and ID:
- Definition of Disability: Most group plans go with a modified own-occupation and switch to gainful occupation after just two years. This can leave you high and dry and dropped. IDI however lets you determine the definition right from the get go.
- Portability: If you switch jobs you will not be able to take your LTD with you as it is part of the group plan for where you work. IDIs however are owned by you and if you switch jobs there will be no lapse in coverage provide you always pay your premiums.
- Taxes: LTDs which are paid for at least in part by your employer will be fully taxable if benefits are paid, but with IDIs you pay the premiums so the benefits would be tax-free.
- Residual and Partial: Some group plans will pay residual disabilities for up to two years and many will not offer it at all. IDIs will typically have better overall provisional benefits that can be chosen.
- Mental: Most group plans will limit mental disability to only two years while many IDIs will not cap mental disabilities and treat them as any other disability would get treated.
- Monthly Maximums: Both plans have maximums that will be paid each month but the group plan is typically 60 percent of salary or $5,000 per month. With IDIs you can choose a higher percentage and caps are usually set at a much higher $15,000 per month.
- Covered Income: Most LTDs will only cover your base salary and will leave out commissions and bonuses where as many IDIs will include them.
Too many people get caught up with the perception that their group coverage will pay out as much in benefits and be just as adequate as an IDI but the reality is not so. While having group benefits is indeed a good start it is not going to offer you everything that an individual plan will. That is why many will ultimately choose to supplement with an IDI plan so that they can raise their percentage of coverage by another 10 to 20 percent.
The reality is that although IDIs are more costly, they offer far more coverages and should be utilized to ensure that you are always covered should you ever be faced with a disability. Though the difference may be an IDI costing $2,000 to and LTD costing $200, that is no reason not to be skeptical of the cheaper policy. If you saw a new television for $700 and the same one later on for $7.00 wouldn't you ask what was wrong with the cheaper one? Well long-term insurance polices should be no different.
Don't get caught up in price. The idea behind disability insurance is to protect yourself and your family should you become disabled and not be able to work. You have to be sure that you have coverage that will not just be there for the first two years but that will be there for longer if necessary. Don't take chances with your future because becoming disabled will be hard enough and you will not want to deal with the added stress of financial problems on top of everything else you will have to deal with.