group disability vs. individual disability

Submitted by Anonymous (not verified) on Tue, 09/08/2009 - 06:04

Is group disability insurance better than an individual one?

Posted: 08 Sep 2009 11:58 Post Subject:

In general, the answer is "no". They are very different products. When an employer puts an insurance plan in place, they want it to be as cheap as possible. The way to make an insurance policy less expensive is to make it as hard as possible to collect on a claim. When an individual buys a policy, they want it to be as easy as possible to collect on a claim.

Posted: 09 Sep 2009 11:17 Post Subject:

The way to make an insurance policy less expensive is to make it as hard as possible to collect on a claim.


How does the carrier make it hard to collect?
Do you mean that they put some inexplicable clauses in the papers?

Posted: 10 Sep 2009 12:56 Post Subject:

The contractual terms are simply different. I can give you lots of examples. Here are just a couple, but I could give you a dozen and I'm assuming that it's a good individual policy:

Let's assume that the benefit is $5,000/month.

1) Joe becomes completely disabled. Social Security Disability pays him $1500/month. A work policy would only pay $3,500. A top notch individual policy would pay $5,000.

2) Joe suffers a partial disability. He can work part time and he earns half of his income. A work policy might not pay him anything. Some don't pay for partial. Others make the person be totally disabled first. A good individual policy would pay him $2500/month.

Posted: 10 Sep 2009 09:23 Post Subject:

Thanks, that's what I wanted to get clarified with. Losing $1500 a month with a work policy could be truly critical under such circumstances.

Posted: 11 Sep 2009 01:23 Post Subject:

More claims will see an increase in the cost of a group LTD policy. On the other hand, the premium will remain fixed for an individual policy.

Steven

Posted: 12 Sep 2009 11:29 Post Subject:

Your group LTD benefits would be taxable like your income. In comparison, the individual disability benefits are tax-free.

Posted: 12 Sep 2009 06:42 Post Subject:

Your group LTD benefits would be taxable like your income. In comparison, the individual disability benefits are tax-free.



That's not necessarily correct. Group LTD is taxable if the company is paying the premiums and the premiums are not being treated as income to you.

Individual LTD is tax free if the individual is not taking a deduction for the premiums.

Posted: 14 Sep 2009 08:24 Post Subject:

Group LTD is taxable if the company is paying the premiums and the premiums are not being treated as income to you.



Suppose, the company is paying the premiums and the premiums are being regarded as my income. Won't my premiums be taxable under such circumstances?

Posted: 15 Sep 2009 12:05 Post Subject:

Yes, the premiums will be taxed as income. The concern isn't paying taxes on a few premium dollars. The concern is paying taxes on thousands of dollars of disability benefits.

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