In order to decide if you need both group long-term disability insurance and individual disability insurance, it is important that you first understand the difference between the two. Group long-term disability (LTD) insurance is generally offered through your employer as part of your employee benefits package and is usually governed by the federal law known as ERISA. Individual disability insurance (IDI) is coverage you purchase for yourself based upon your income at the time of purchase.
Group Long-Term Disability
LTD policies are usually intended to protect a percentage of your income, up to a defined maximum amount. LTD insurance is not workers compensation, but income replacement in the event you suffer a disabling injury or illness. Some LTD policies specifically exclude from coverage any injury that would be covered by workers compensation, but many do not. Most LTD policies today specifically limit coverage for drug and alcohol abuse and mental disorders to two years of coverage. Most policies also limit own occupation coverage to the first two years of disability, meaning if your injury or illness prevents you from performing the occupation you were doing at the time you became disabled, then you are entitled to disability benefits. However, once the own occupation coverage ends, then you are only entitled to benefits if the injury or illness prevents you from performing any gainful occupation for which you are qualified. LTD policies also further reduce benefits if you are receiving additional sources of income, such as Social Security disability, salary continuation, severance pay, and other disability benefits. If you qualify, the insurance company may also require you to apply for Social Security disability.
Individual Disability Insurance
While LTD policies generally provide a disability benefit tied to your income at the time of disability, IDI policies provide a set benefit as determined at the time you purchase your IDI policy. As your LTD policy is an employee benefit, should your employment change, you will no longer have that LTD coverage. Alternatively, as you purchase your IDI policy yourself, you will always have your IDI policy. Further, IDI policies are typically non-cancellable and guaranteed renewable, meaning once the policy is issued, the premium amount is guaranteed, typically through your 65th birthday. Purchasing an IDI policy also provides you greater flexibility in designing the coverage to meet your needs. When you purchase the policy, you have options such as, deciding if the benefit is payable to age 65 or for life, if you want coverage for a partial disability, and if and how long you want coverage for your inability to perform your own occupation as opposed to any gainful occupation.
For professionals and executives, in most cases, having individual disability insurance and group long-term disability insurance from your employer is often the best bet. Your IDI policy will stay with you irrespective of your job and occupation and often provides more favorable coverage than an LTD policy. However, if your employer also provides LTD insurance, these two types of policies together will provide you with the maximum coverage you may be able to obtain should you become disabled. The key is to understand what each of your polices does for you, and make sure you have the coverage that meets your needs.