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Group vs. Individual Disability Insurance

Home Insurance Group vs. Individual Disability Insurance

  • Avatar wcinewbie 
    Participant
    Status: Physician
    Posts: 92
    Joined: 09/30/2017

    Hi All,

    I’m sure my situation is not unique but I have not seen consistent guidance on the question.

    Basic situation: I obtained an own occupation policy with The Standard as an intern with all the bells and whistles (cost of living adjustment, non-cancellable, future purchase option of $10,000 and have been pretty pleased with it thus far.  I have now finished training with a great job and am considering exercising my future purchase option.  My job comes with what sounds like excellent group long term disability policy from United of Omaha (monthly benefit percentage 60%, maximum monthly benefit $15,000, own occupation up to 65) at a cost of $39/month which is covered by the company.  Exercising my individual future purchase option would cost approximately $30 for every $100/month benefit.

    To me the math is obvious.  Take the group disability at $39/month which is already covered by the company for the benefit percentage of 60% of my salary.  I could still keep my +/- $4000/month policy I bought.  My broker has advised me the “goal” is to maximize individual coverage whenever possible.  For better or for worse, I waited outside the signup period for the group policy and now have to do go through medical underwriting.  I was initially denied future purchase option at the first company I applied but it was allowed at at The Standard.

    What would be the benefit of maximizing the individual coverage?  Is it worth the substantial difference in price?

    #66556 Reply
    jfoxcpacfp jfoxcpacfp 
    Moderator
    Status: Financial Advisor, Accountant, Small Business Owner
    Posts: 8358
    Joined: 01/09/2016

    Surprised one of our DI agents has not stepped in to help. Here are some points to be aware of when comparing group and individual DI policies (as explained to me by a provider):

    • Employer DI is governed by ERISA, which makes a claims appeal very particular. It must go before federal courts and there is an incentive for the insurance company to push the limits. You cannot sue them if they don’t “do the right thing”.
      • Individual DI is covered by the state and local court system, not ERISA. Any appeal would go through the jury system and you can sue for bad faith, making it easier to get paid for claims.
    • Group plan benefits are offset against SS, potential retirement benefits, workmen’s comp lump sum, and anything else applicable. Group insurers, therefor, have a huge incentive to push you to apply for SSDI. The offset is dollar for dollar.
      • Benefits for individual policies, unlike group policies, are not offset against other benefits. iow, if you qualify under your individual policy, you get paid no matter what other benefits are available.
    • The definition of OO for group plans is not the same as the definition for true OO.
      • Group plans have a “return to work benefit” that reduces you to partial disability as you begin making income doing something else
      • OO pay full benefit if you cannot perform “material and substantial duties of your OO”
    • All group plans have a limit for illness in re: mental illness and substance abuse and soft tissue disorders (fibromyalgia, for example), limiting those claims to 24 months.
      • OO individual plans have no limitation.
    • Group plans usually apply the total disability definition specific to the person’s work for only 24 months and then changes to “any occupation for which you can be reasonably employed”.
      • Individual policies are OO throughout the benefits period (until age 65).

    Compare your group plan policy details to your individual OO policy details. And, of course, take into consideration that you likely won’t continue working for your current employer throughout your career and that, even if you do, the employer can change plans without your consent.

    Before you decide, I recommend getting a second opinion from a provider who will compare your policies side-by-side.

    Johanna Fox Turner, CPA, CFP: I am not your financial advisor; any responses are for general purposes only
    http://www.fox-cpas.com/for-doctors-only ~ [email protected]

    #66648 Reply
    Avatar wcinewbie 
    Participant
    Status: Physician
    Posts: 92
    Joined: 09/30/2017

    Thanks everybody.  The group own occupation definition is through age 65.  Is that unusual?  One of the lines also says pre-existing condition exclusion: 3/12.  What does that mean?

    The final wrinkle to all this is the policy is for all non-owner physicians.  After the end of 2 years and change, all physicians become either owner physicians or move on.  I have not yet asked what is available after.  Does this change the equation at all?

    #66653 Reply
    Avatar kh 
    Participant
    Status: Physician
    Posts: 2
    Joined: 09/02/2017

    A friend of mine became disabled. She is a surgeon working employed by a hospital. She was denied the insurance. Her lawyer told her that disability is a benefit when paid by the employer and can be cancelled at any time. Might be a reason to have your own insurance.

    #66655 Reply
    Scott at MD Financial Services Scott at MD Financial Services 
    Participant
    Status: Website Sponsor, Insurance Agent, Small Business Owner
    Posts: 451
    Joined: 01/14/2016

    You might look more closely at that Own Occupation definition of disability by Mutual Of Omaha, I bet you will see the clause of Not Engaged in there.  Keep in mind cheap is good, free is good but there is always a reason why it is cheap….  Ask them if:

    They reduce benefits for other income?

    What happens if I get a lump sum benefit from a settlement that caused an injury?

    How is it taxed?

    Can the carrier ever change the benefit amount?

    Can the carrier change the premiums?

    Can the carrier ever cancel it?

    Does the DOL decide/determine my specialty?

    The list goes on and on, don’t get me wrong those are not all bad but at the end of day when a carrier has both individual and group products for sale, there are plenty of reasons why they charge such a different premium to the consumer.

    S. Scott Nelson-Archer, CLU, ChFC with M. D. Financial Services, Inc.
    Direct Phone 713-966-3932, Email [email protected]

    #66680 Reply
    Avatar mero1984 
    Participant
    Status: Physician
    Posts: 26
    Joined: 06/03/2019

    Colleagues and friends, i am piggybacking on this thread so i dont start a new one.

    I am in a similar position as the original poster. I have a Guardian Premier policy that i bought 1 month before i finished training and costs me 240 dollars per month, covers me for a base of 7500 dollars per month with all bells and whistles (can increase the benefit anytime without a medical exam, COLA rider, etc).

    I started my job, and the employer offers a policy through UNUM, which costs 124 dollars per month, and covers up to a maximum of 35000 (starting at 60% of base salary). this would equate to about 14000 per month for my situation now.

    I need to enroll in this group policy within 30 days, or ill need a medical underwriting if i opt to enroll later. I am 34 and healthy (not obese, not smoker, almost no meat/dairy consumption)

    My instinct is NOT to get the group policy and be greedy, since disability insurance in my view a backup for a catastrophe.

    in my mind, investing this money (allocated to a second disability policy) would be a better option, and just keep my own individual policy as protection. I have no debt, saved 50k dollars that i have in an online savings account, and will start investing it soon. I also have have a condominium in a suburb of a big city, that i rent and pay mortgage on with the rent.Not married yet, no kids.

    I appreciate any insight whether what i plan to do makes sense (drop the group policy, and keep my private guardian premier policy).

    Thanks so much for your help.

     

     

    #228930 Reply
    Scott at MD Financial Services Scott at MD Financial Services 
    Participant
    Status: Website Sponsor, Insurance Agent, Small Business Owner
    Posts: 451
    Joined: 01/14/2016
    Earnest refinancing bonus

    Colleagues and friends, i am piggybacking on this thread so i dont start a new one.

    I am in a similar position as the original poster. I have a Guardian Premier policy that i bought 1 month before i finished training and costs me 240 dollars per month, covers me for a base of 7500 dollars per month with all bells and whistles (can increase the benefit anytime without a medical exam, COLA rider, etc).

    I started my job, and the employer offers a policy through UNUM, which costs 124 dollars per month, and covers up to a maximum of 35000 (starting at 60% of base salary). this would equate to about 14000 per month for my situation now.

    I need to enroll in this group policy within 30 days, or ill need a medical underwriting if i opt to enroll later. I am 34 and healthy (not obese, not smoker, almost no meat/dairy consumption)

    My instinct is NOT to get the group policy and be greedy, since disability insurance in my view a backup for a catastrophe.

    in my mind, investing this money (allocated to a second disability policy) would be a better option, and just keep my own individual policy as protection. I have no debt, saved 50k dollars that i have in an online savings account, and will start investing it soon. I also have have a condominium in a suburb of a big city, that i rent and pay mortgage on with the rent.Not married yet, no kids.

    I appreciate any insight whether what i plan to do makes sense (drop the group policy, and keep my private guardian premier policy).

    Thanks so much for your help.

     

     

    Click to expand…

    Are there different options of participation for the group?  What I mean is do you have the option to elect maybe 50% of income covered instead of 60%?  Keep in mind that there are benefit offsets on that UNUM policy so even if you are ‘set to get $14k’, in all actuality you will get something less due to ‘income benefit offset provisions’ in that policy, usually on about page 45.  Certainly having an extra $124 per month going to investments is helpful vs. spending it on insurance or anything else for that matter but the main question I would have is “Does the $7500 from Guardian pay all of your bills and provide excess cash to continue to save for retirement”?  If yes, then you probably don’t need the group, if not then you need to either up the individual policy or accept the group plan.  If you are going to accept the group plan you really need to get a copy of the master policy so you can read what it states will be the behavior of the policy at claim time.  The final thing to check on is cost on the Guardian plan, $240 for $7500 seems kind of expensive but that certainly depends on age, gender, specialty, and state of residency.

    S. Scott Nelson-Archer, CLU, ChFC with M. D. Financial Services, Inc.
    Direct Phone 713-966-3932, Email [email protected]

    #229018 Reply

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