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The insurance industry in the United States has become so specialized over the years that the array of insurance products is simply staggering. Industry professionals specialize in one type of insurance, and then within that type, they focus on a specific sub-group. It can be hard for the rest of us to keep up, but it is important to understand the different types of policies to be sure you have the coverage that you need.

Short-term and long-term disability insurance provide benefits to make up for income lost if you become unable to work due to a physical or mental disability. However, these policies can be very different when they are offered as group insurance compared with when they are offered through private, individual policies.  

For decades, the team at Seltzer & Associates has focused on helping professionals receive fair treatment and appropriate benefits from disability insurance companies. We know there is a lot of confusion about group and private disability insurance policies, and as a result, many professionals either lack the coverage that they should have to protect themselves or they fail to take the right actions to receive the benefits they are entitled to. So, in this post, we want to explore the differences between group disability coverage and private disability coverage.

Disability Insurance Basics

Disability insurance is an insurance product that pays benefits if the policyholder is unable to work due to a covered disability. While the federal government provides some disability insurance through Social Security, the benefits are severely limited, and the eligibility standards make it extremely difficult for professionals to qualify. Physicians, dentists, executives, psychologists, lawyers, accountants, and other professionals who have invested heavily in their education and careers often choose to purchase disability insurance to protect themselves and their families if they become unable to work due to a disabling condition.

Policy terms can vary tremendously regarding the types of disabilities they cover when a policyholder becomes eligible, the duration of benefit payments, and other issues. Generally, however, policies will provide at least some benefits for physical impairments such as back pain and mental impairments such as anxiety or depression. 

Short-term disability policies usually provide payments soon after a condition interferes with the ability to work, but the coverage lasts only a brief time—often three to six months. Long-term coverage will usually not take effect until after you have been unable to work for three months or more. The length of coverage is measured in years rather than months, and some policies provide coverage through retirement age.

Group Disability Insurance Coverage

When you purchase any type of insurance as part of a group rather than individually, your premiums will generally be lower because you’re essentially getting a bulk discount. But you get what you pay for, so a discounted policy is likely to offer less value.

Employers often offer group disability insurance plans as part of their benefit package. In this situation, insurance coverage is tied to your employment, so if you leave the position, you lose the coverage. In addition, the employer chooses the coverage options and may make changes each year without consulting employees.

In group disability plans, the benefits provided if you are unable to work are usually based on salary, not counting any incentives or bonuses. They are often capped at a certain amount regardless of actual earnings. While there are some group policies that pay 100% of earnings, it is more common to find group policies that pay between 50-60% of an employee’s salary rate after an elimination period of 60-120 days. In some cases, employees have the option of purchasing additional coverage that would enable them to receive 70% or more of their earnings if they were to be unable to work due to disability.

Individual Disability Insurance Policies

There is generally more variation in terms of individual disability insurance policies, so it is important to assess your needs and pay attention to the details before purchasing coverage. Unlike group coverage, where an employer makes the decisions, you have a choice of terms, so you need to understand what those terms cover and what may be left out.

Rather than paying benefits tied to earnings, some individual policies provide for a set amount of benefit payments per month. For policies based on a percentage of income, you may have a much greater choice of coverage. You can pay higher premiums for a policy that pays 70-80% of your income or lower premiums for coverage that provides a lower benefit amount. The length of coverage can vary considerably.

As with any insurance, you are buying coverage in the hope that you will never need to use it, but if you’ve invested decades in your education and building your career, you may want to invest in additional insurance to protect your earnings. Individual disability policies can be used to supplement coverage provided through an employer or as the primary form of disability insurance. Higher-earning professionals often find that they appreciate the control they have over private disability insurance and the security it provides in case a situation arises where they are unable to work in the profession they have focused on for years.

What to Look for in a Disability Insurance Policy

At Selzer & Associates, we often help professionals review the terms of their existing policies or policies they are considering purchasing. We help compare terms and coverage so that policyholders have a thorough understanding of what benefits they should receive if they need to make a claim. While it is not possible to go into all the details in this blog, here are some of the main features to watch for in a private disability insurance policy:

• Own occupation coverage. Some policies will only pay benefits if your disability prevents you from working in “any occupation,” but it is far better to have a policy that pays benefits when your disability impairs your ability to perform your own chosen occupation.
• Guaranteed coverage. Look for coverage that cannot be canceled and that is guaranteed renewable.
• Benefit amounts. Do you want a policy that provides a set amount or a percentage of income? Pay attention to the way the income amount is calculated.
• Taxation. Benefits can be considered taxable income or collected tax-free, depending on the way the policy is structured.
• Elimination period. While most policies provide coverage after 90 days of disability, some policies have longer elimination periods to lower the cost of premiums.
• Benefit period. Do benefits continue for two years? Ten years? Until retirement age? Consider your needs vs. the effect on premium costs.

Because there are so many factors to evaluate, it can be overwhelming. Our team would be happy to help you assess your needs and evaluate the coverage in your current or prospective private disability insurance policy.

Talk to Seltzer & Associates if You Have Questions About Private Disability Insurance

It can be difficult to get a straight answer from an insurance company because they want to sell you the policy that makes them the most money. So, if you have questions about your coverage needs, we invite you to contact the team at Selzer & Associates for a complimentary consultation. We don’t sell insurance, so we can give you an honest assessment of a policy and how it may or may not meet your needs.

If you should ever need to file a claim, we can help with the process of preparing the evidence to demonstrate that you qualify for benefits or help you appeal if your claim is denied or benefits are terminated. To learn more about the ways we can assist with disability insurance issues, call us at 888-699-4222 or contact us online.