Is group disability insurance worth it?

Group disability insurance policies are often very affordable and maybe even subsidized by your employer. But group plans often offer less coverage.

Nupur GambhirPat Hanzel

Updated October 28, 2019|8 min read

Editorial disclosure

Key Takeaways

  • To be eligible for disability insurance benefits, you must be totally disabled, or injured and unable to work, and seeking treatment

  • One in four people will become disabled during their careers

  • Group disability insurance can supplement a private disability insurance policy to provide robust coverage

Group disability insurance policies are often very affordable and may even be subsidized by your employer. But group plans often offer less coverage.

If you have disability insurance and become injured or sick and lose your ability to work, you’ll get paid monthly disability insurance benefits to cover your lost income. Disability insurance can be bought individually, but many employers offer long-term and short-term disability insurance as part of an employee benefits package, like health insurance.

In this article:

Group disability insurance explained

Employee-sponsored disability insurance is called group disability insurance. Because many of your colleagues buy into it, group disability policies are often less expensive than those you buy individually.

However, group disability insurance often offers less coverage, and more restrictions on how to access that coverage, than private long-term disability insurance. But group disability insurance can supplement and even enhance your private coverage, so if your employer offers it, you should consider it even if you already have a private plan.

The pros of group disability insurance

Group disability coverage is often subsidized by employers as a workplace benefit, which makes it a worthwhile consideration.

Group disability insurance is easier to apply for

Unlike private disability insurance plans, you won’t need to prove your income when you apply for the policy. If you have a health condition that would normally bar you from receiving disability insurance, you’ll also be able to skip the medical exam, as group disability insurance policies are frequently guaranteed issue. That means you’ll have the same coverage as colleagues who are healthier (or less healthy) than you.

Pre-existing conditions

One advantage of group disability insurance over private disability insurance is that you can usually get pre-existing conditions covered once you’ve had the policy for 12 months or more. Under a private policy, a given pre-existing condition may be excluded from coverage, meaning that if it causes your disability, then you won’t be able to receive benefits for it.

Group disability insurance may be cheaper

Private long-term disability insurance can cost upwards of $100 per month for a 30-year-old man taking out a policy for $5,000 per month in coverage. Group disability insurance could be significantly less expensive, but it won’t offer nearly as much coverage.

The cons of group disability insurance

Group disability insurance is coverage from your employer for when you become disabled and can’t work. For many people, the relatively smaller benefit amount and shorter benefit period of group disability insurance is enough coverage. But in the event that you become disabled long-term, you may need a more robust private disability insurance policy.

The coverage amounts are lower

You could be limited to a benefit amount – the amount you get paid each month by the insurer while you’re disabled – set by your employer. This may help replace your income while you’re injured or sick and can’t work, but it could also fall short. A good rule of thumb is that long-term disability insurance benefits should replace around 60% of your pretax income, so if you’re being paid a predetermined amount, it could be much less than that.

You can’t take group disability insurance with you

As an employer disability plan, group disability insurance is not portable, which means that when you leave your job, you will lose your coverage. Private plans continue covering you as long as you keep paying the premiums.

Definition of disability

Group disability and individual disability insurance each have similar requirements to receive disability coverage. You have to be totally disabled – and seeing a physician for treatment – to be able to claim full benefits. Obtaining a total disability means you are no longer able to perform your job duties, whereas a partial disability only prevents you from performing some of your work functions.

For both group and individual policies, your eligibility to claim benefits from your disability insurance policy hinges on whether it’s an own-occupation or any-occupation policy. Own-occupation disability insurance pays benefits even if you’re able to work another, less-demanding job, although your benefits could be reduced by your wages from the new job. Any-occupation won’t pay benefits if you’re able to work another job you’re qualified for.

The difference between the two policies lies within the type of coverage you receive. Individual insurance policies are going to offer a lot more coverage flexibility, while employer policies tend to have only a limited own-occupation period while you’re disabled, after which your coverage becomes any-occupation. Group disability policies typically only compensate for base salary, whereas an individual policy may cover commission or bonuses provided you can demonstrate that it's consistent income.

Note that some group disability policies have only a limited own-occupation period while you’re disabled, after which your coverage becomes any-occupation.

Under each policy, you can also get the following types of coverage:

  • Partial disability benefits — also called “residual disability benefits”, these are prorated benefits paid for a proportion of lost income, lost time, or lost responsibilities when you’re disabled but don’t need to miss work entirely.

  • Presumptive disability benefits — these are benefits paid for a disability so severe that you’re presumed unlikely to ever recover, such as losing two or more limbs, or the use of your ears, eyes, or speech.

Both long-term and short-term policies are available

Although this is heavily dependent on your employer’s benefits options, it’s often possible to get either a long-term or short-term disability insurance policy, or even both. The difference between them is twofold:

  • Short-term disability insurance has a shorter elimination period, the time you have to wait after becoming disabled before the insurer starts paying your benefits. While long-term disability insurance typically has a waiting period of 90 days, short-term disability insurance policyholders typically only have to wait a week or two.

  • Long-term disability insurance has a much longer benefit period, the time during which you receive monthly benefit payments until you either recover from your disability, your benefit period ends, or you die. Long-term disability insurance can have a benefit period that lasts until age 65 (or 67 with some insurers), but short-term disability insurance benefit periods often only last a few months or at maximum, two years.

Workers’ compensation can reduce your benefits

If your injury was caused on the job, you could be eligible for workers’ compensation. However, your group disability insurance benefits will be reduced by the amount you receive from workers’ comp.

On its own, Social Security disability insurance (SSDI) benefits are hard to qualify for and are usually not sufficient enough to replace lost income. Relying on SSDI can bring families near the poverty line, while also reducing your group disability insurance benefits. This happens with some private disability insurance policies as well.

Policygenius is the easy way to compare disability insurance.

"Policygenius… guides consumers to figure out what kind of insurance they need and offers them options."

– The Wall Street Journal

Group disability insurance from an association or member organization

While group disability insurance is typically offered by employers, some membership organizations and associations also offer group disability insurance. These policies are virtually identical to those which you can get from your employer. They're more affordable than individual disability insurance, but they also could offer lower coverage. However, association/membership organization disability insurance has several advantages over employer-provided group disability insurance.

For one, these plans are often portable as long as you remain a member of the association in good standing; even if you change jobs, the organization will continue to provide you with coverage. Additionally, benefits may be tailored to the needs of the group's members.

Unions and trade organizations

Labor unions often offer disability insurance. For example, members of the Service Employees International Union (SEIU) can get disability insurance through their local union. The Freelancers Union and the Writers Guild of America (WGA) also have disability plans. Many unions that offer disability insurance to their members have a major feature built in: your premiums could be waived if the union calls for a strike or a lockout.

Some medical and legal associations that offer disability insurance include:

  • The American Dentists Association (ADA)

  • The American Academy of Family Physicians (AAFP)

  • The American Bar Association (ABA)

  • The Financial Planning Association (FPA)

How group disability insurance can supplement your private coverage

If you have the option to purchase both group disability insurance and individual disability insurance, you might find the most protection for your income by purchasing both. Here’s when it makes sense to have both:

Your group insurance is short-term

If you can’t get a long-term disability insurance policy from your employer, then purchasing one separately can enhance even the best short-term group coverage. Since the short-term insurance starts making benefit payments quickly, you’ll be receiving those benefits while you wait out the long-term policy’s elimination period. That means if you’re still out of work when your short-term coverage ends, you may seamlessly transition into long-term care and not have to miss out on any benefit payments.

With one out of four people becoming disabled during their careers, the chances of losing steady income to a disability are pretty high. The graph below can give you a good idea about the average length of a long-term disability at a given age. Safeguard your income during any point of a disability by buying the right amount of disability insurance.

Current ageLikelihood of a long-term disability before retirementAverage duration of a long-term disability
20-302.5 in 1026 months
31-403.3 in 1032 months
41-503.0 in 1042 months
51-602.3 in 1050 months
60+1.0 in 1054 months

Your group insurance doesn’t offer enough coverage

Group disability insurance is usually limited to what your employer chooses to offer. That means you could have a lower benefit amount and fewer riders to choose from to customize your coverage. However, because group coverage is more affordable, you can save money by letting the coverage from that policy offset some of the coverage from your private policy and reducing your premiums on the latter.

Complementing a short-term group disability insurance policy with a private long-term disability insurance policy ensures that you’re protecting your income. The following stats show you how much you can expect to spend on premiums for a good policy, about 1-3% of your yearly salary.

$30,000$300 - $900$25 - $75
$50,000$500 - $1,500$60 - $125
$100,000$1,000 - $3,000$83 - $250
$150,000$1,500 - $4,500$125 - $375
$200,000$2,000 - $6,000$166 - $500

As Patrick Hanzel, Policygenius’ Advanced Planning Specialist and Certified Financial Planner explains, "If group coverage is offered at no cost to the employee, we typically recommend supplementing that benefit in order to be fully covered. Due to the benefit from employer provided coverage being taxed as income, a policy that covers 60% of your salary could actually feel more like 35-40%. Because of this, you can purchase an individual policy to bridge that taxable gap and bring yourself to full income replacement in the event of a disability."

Are group disability insurance benefits taxable?

Private disability insurance benefits are generally not taxed. However, if your employer pays for your premiums, your benefits could be taxed like income. That’s also true if your employer only pays part of your premiums: You’ll be taxed on the portion your employer paid for.

How to get group disability insurance

To make sure that you are set up for financial protection, consider opting in for group disability insurance through your employer during open enrollment. Open enrollment is when employees can make changes or enroll in their employer-provided insurance plans and only occurs once a year. (You may also be able to sign up for life insurance during this time.)

If you miss the open enrollment deadline to receive benefits, you will need to wait until the following year to sign up unless you have an extenuating circumstance that makes you eligible for a Special Enrollment Period. This could include starting a new job, changing your marital status, having a kid, moving, or turning 26.

If you’ve already enrolled in a group disability policy at work, open enrollment is a good time to amend your plan to complement a private policy. A licensed representative from Policygenius can help you understand your options and choose the right private long-term disability insurance policy to augment your short-term group plan.

Here are some of the insurance companies that offer group disability insurance benefits during open enrollment:

  • Aflac

  • Hartford

  • Humana

  • Mutual of Omaha

  • Metlife

LifePreserve, a Policygenius partner, offers short-term disability insurance for contract and temporary workers who cannot enroll in a group disability insurance policy through an employer.