Group disability insurance

Group disability insurance pays out a percentage of your salary if you become disabled and can’t work. Policies are affordable but taxes mean you’re unlikely to get enough coverage.

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Nupur Gambhir

Nupur Gambhir

Life Insurance Expert

Nupur Gambhir is an insurance editor at Policygenius and licensed Life, Health, and Disability agent in New York.

&

Amanda Shih

Amanda Shih

Editor & Licensed Insurance Expert

Amanda Shih is an insurance editor and licensed Life, Health, and Disability agent at Policygenius in New York City. Her work has appeared in Slate, Lifehacker, Little Spoon, and J.D. Power.

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by

Patrick Hanzel, CFP®

Patrick Hanzel, CFP®

CERTIFIED FINANCIAL PLANNER™ & Advanced Planning Team Lead

Patrick Hanzel is a CERTIFIED FINANCIAL PLANNER™ and Advanced Planning Team Lead at Policygenius. He has eight years of insurance and financial industry experience and previously worked at Northwestern Mutual as an advisor and associate. His expertise has been featured on Lifehacker, Consumer Affairs, Authority Magazine, Thrive Global, and Fatherly.

Updated September 22, 2021|3 min read

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Group disability insurance is disability coverage offered by employers, usually at little or no cost. If an illness or injury keeps you from working, group disability pays out a benefit to replace some of your lost income. 

It’s smart to sign up for an employer-sponsored plan because it’s affordable, but you shouldn’t rely on it for all of your disability insurance. Due to taxes and policy restrictions, group disability rarely pays out enough benefits to replace your salary and you usually lose it if you leave your company.

Key Takeaways

  • To be eligible for disability insurance payments, you must be too ill or injured to work and seeking treatment

  • Some employers only offer short-term group disability, while others also provide long-term group disability

  • Group disability insurance should supplement a private disability policy

How does group disability insurance work?

You can sign up for group disability income insurance during your annual benefits enrollment period or after a qualifying event, like starting a new job or getting married. 

You’ll need to meet your insurer’s definition of disability — a set of qualifications — to get payments. Group disability policies don’t cover work-related disabilities and may not pay out if you’re able to do another job. Employees commonly use group disability coverage to replace their income during:

  • Mental health treatment

  • Pregnancy

  • Recovery from a physical injury

  • Treatment for a serious illness

If you’re receiving another kind of disability income assistance, like workers’ compensation, any other disability benefits you’re getting can be reduced.

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Group short-term vs. group long-term disability insurance

Employers offer short-term disability and/or long-term disability insurance. 

  • Short-term disability (STD): STD has a shorter elimination period — the time between when you become disabled and when your benefits start — of zero to 30 days. Benefits last three to six months and are typically paid weekly.

  • Long-term disability (LTD): Benefits begin after a longer elimination period, often 90 days or more. Monthly payments last for two, five, or 10 years, or until you retire.

Both types of group coverage pay benefits equal to up to 60% of your salary (the percentage may be slightly higher or lower, depending on your plan). But, because your employer pays some or all of your policy premiums, that 60% payment is taxed

The two types of coverage are designed to work together so that short-term disability covers the early period of a disability, after which you return to work or start getting long-term disability benefits.

How to qualify for group disability benefits

To get group disability payments, you need to meet the definition of disability spelled out in your policy. You’ll need to be:

  • Seeing a medical professional for treatment

  • Totally disabled (i.e., can’t perform any job duties)

Whether you’re considered totally disabled depends on whether you have own-occupation or any-occupation coverage. Own-occupation disability insurance pays benefits even if you’re able to work another job. Any-occupation only pays if you can’t do any job.

Some group disability policies start with own-occupation coverage but become any-occupation after a set period.

Should you get group disability insurance?

It’s always worthwhile to get group disability insurance because it’s a cheap or free way to get some disability coverage. There’s no medical exam required, so it’s easy to qualify for a policy even if you have pre-existing conditions. 

However, group disability shouldn’t be your only disability insurance plan. "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%,” says Patrick Hanzel, certified financial planner and Policygenius Advanced Planning Team Lead. “You can purchase an individual policy to bridge that taxable gap and bring yourself to full income replacement in the event of a disability."

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Where else to get group disability insurance 

Some membership organizations and associations also offer group disability insurance. These policies work just like employer-sponsored policies, except that you can keep the policy as long as you stay a member of your organization and benefits may be tailored to the needs of your group’s members. 

Medical and legal associations — such as The American Bar Association and The American Dentists Association — offer disability insurance to their members. Unions and trade organizations also offer the benefit and may even waive premiums if the union calls for a strike. 

Getting group disability insurance is a simple and affordable way to protect your income. While a group policy won’t give you the most comprehensive coverage, it’ll ensure that you have some financial support if you face an unexpected injury or illness.

Frequently asked questions

What is group disability income insurance?

A disability insurance policy offered and usually subsidized by your employer that replaces up to 60% of your income (after taxes, more like 35-40%) if you become disabled and can’t work.

How much does group disability insurance cost?

It depends on how much of your premiums are subsidized. You may pay a small amount or the coverage could be free.

Should you get group disability insurance?

You should get group disability if the policy is low-cost, but you shouldn’t rely on a group policy for all of your disability insurance coverage.

Is group disability insurance tax deductible?

Group disability insurance premiums are tax deductible for employers, but not for employees.