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Marc A. Hebert's Money Sense: What to consider when looking at group disability insurance

February 09. 2018 9:23PM

When people think of their most valuable asset, they usually think of their home or investment portfolio. But for most, it really is the ability to earn a living. Consider what your financial life would be like if you weren't able to work for any length of time.

Disability insurance might help provide you the income you need if something happened that hindered your ability to work. Disability insurance is sometimes offered through groups that have a common interest - such as an employer or trade group - and can be an affordable source of coverage.

With group disability insurance coverage, you are not issued an individual policy nor evaluated for coverage as an individual. Instead, the policy is issued to the company or organization that represents the group. The individuals within the group who apply for disability insurance are issued certificates of coverage rather than individual policies.

There are two types of group disability coverage: short term and long term.

Short-term coverage plans generally pay benefits for a few months, although sometimes the covered period can be as long as two years.

Long-term disability coverage may pay benefits for several years, or until a certain age, such as 65. The long-term benefits are usually coordinated with the benefits from the short-term plan so the disability coverage is continuous.

When reviewing group disability insurance options, here are some things to keep in mind:

. The premium may be paid by you, your employer, or both.

. Group disability often has flexible underwriting. During the initial or open enrollment periods, you might not have to pass a physical to join the plan. This is because the risk of disability is borne by the group rather than by an individual.

. The plans might have a certain base benefit, but allow the participant to add other benefits for a cost.

. When you leave your job or terminate your relationship with the group, you usually can't take your group disability coverage with you. These policies generally can't be converted into an individual policy.

. The benefit provided might be reduced by payments that you receive from workers' compensation, Social Security or other government benefit.

. Depending on who pays the premium, the benefit might be taxable. Usually if the premium is paid on a pre-tax basis, the benefit will be taxable. This is an area you will need to discuss with your tax adviser or financial planner.

When reviewing your particular plan consider the following:

. What is the definition of disability? Generally you must be under the care of a doctor due to an illness or injury that impairs your ability to work in either "your own occupation" or in "any occupation" for which you might be qualified based on education, experience, training and past earnings. It might be a combination - your "own occupation" for a certain period and "any occupation" for time frames thereafter.

. How long do the benefits last once you become disabled? Are there additional limits that depend on the type of disability? For example, is there a different time limit if the disability is due to an addiction?

How long is the elimination period? This is the time frame you will have to wait before receiving disability benefits.

. How much of your income does the policy replace? Policies typically pay a benefit equal to 50 percent to 70 percent of your gross monthly base salary. The benefit might also be capped at a monthly amount.

It is important to look at other aspects of your financial life to determine whether the disability income benefits will be sufficient to help you through a tough time. Areas to consider are the expenses you could reduce if disabled, your cash reserves and your other sources of income.

Marc A. Hebert, M.S., CFP, is a senior member and president of the wealth management and financial planning firm The Harbor Group of Bedford. Email questions to Marc at Your question and his response might appear in a future column.

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