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.
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 to file a claim and 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
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.
Group long-term vs. group short-term disability insurance
Employers offer long-term disability insurance and/or short-term disability insurance.
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.
Short-term disability (STD): STD has a shorter elimination period — the time between when you become disabled and when your benefits start — of 0 to 30 days. Benefits last 3 to 6 months and are typically paid weekly.
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% to 40%,” says Patrick Hanzel, certified financial planner and Advanced Planning Team Lead at Policygenius. “You can purchase an individual policy to bridge that taxable gap and bring yourself to full income replacement in the event of a disability."
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.