Securing Income Through Disability Insurance: A Guide to Group and Individual Plans

Raymond Bell |

Disability insurance protects your income if you become disabled and are unable to work. Many people access this coverage through their employer via group short-term and long-term disability plans. Employers often pay for this coverage fully or partially. Short-term disability generally begins after five sick days and covers a period of 30 to 90 days. Following this, long-term disability benefits may extend up until the age of 65 or 67. Typically, short-term disability pays about 50% of one's salary, whereas long-term benefits cover 60 to 67% of salary, up to a monthly limit of between $6,000 and $8,000.

Group coverage is advantageous for most employees as it offers affordable income replacement. Additionally, these policies are often underwritten on a guaranteed or simplified issue basis. With guaranteed issue, coverage is automatic provided employees work the minimum required hours, without needing to undergo health screenings or insurance examinations. Simplified issue requires meeting the minimum work hours and answering a few health questions, which could lead to further underwriting.

However, high earners, often including management, may find themselves underinsured with group coverage. For example, an executive earning $192,000 annually receives a maximum of $8,000 per month from their long-term disability insurance, covering only 50% of their salary. To address the shortfall, an individual disability policy can supplement the group policy, covering the income above the group cap. In the given example, an individual policy would cover an additional 17% of the executive's income, aligning their total coverage with other employees at a lower cost than a full 67% individual policy. Individual policies are portable and can be adjusted to cover income increases, although they require full underwriting and may include exclusions for pre-existing medical conditions.

This strategic approach also benefits small business owners by reducing the cost of comprehensive individual policies while providing essential long-term disability coverage. Insurance carriers may over group coverage for businesses with as few as five employees.

Securities offered through LPL Financial, Member FINRA/SIPC. Investment advice offered through WCG Wealth Advisors, LLC a Registered Investment Advisor. The Wealth Consulting Group and WCG Wealth Advisors, LLC are separate entities from LPL Financial.

Guarantees are based on the claims paying ability of the issuing company.