Advantages and Disadvantages of Group Disability Insurance

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A comparison with individual disability insurance

Advantages of Group Disability Insurance

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• Satisfies the obligation at the lowest possible unit cost.  The unit cost is generally less than 1% of payroll and may change from year to year.

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• Enrollment can be administered at the group level with no employee action required.

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• Guaranteed Issue (no medical questions) is available to small businesses with as few as two (2) members.

Advantages of Individual Disability Insurance

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• Individuals are not dependent on the employer for ongoing coverage once their policies have been issued.   

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• Employers can withdraw financial support without causing adverse changes to policies that have already been issued.  If the employer terminates the program or funding, employees that wish to continue coverage can pay the full premium at their own expense.

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• Participation can be voluntary without creating an obligation to keep participation up.  Once an individual policy has been issued, that policy - and the group discount - is secure even if future group participation tanks.

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• Being Actively at Work is only required for purposes of initially acquiring the policy, not for continued coverage.  This guarantees coverage for employees who later take time off or cut back to part time, with no reduction in coverage even if the benefit would be larger than earnings.

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• There are no formulaic reductions in the benefit amount because individual policies pay a predetermined fixed monthly indemnity benefit.  Benefits are not affected by a recent decline in earnings, the type of compensation, or other benefit sources.  In some cases, there is no limit to the amount and duration of earnings the person can receive from moonlighting in a different occupation while on claim.  In short, individual disability benefits are unique in that they don't need to be calculated at the time of claim.

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• The employer has no obligation to report current earnings, which can be an important advantage if compensation fluctuates.

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• The definition of disability is optimized for individual choice rather than the employer's return to work objectives.  The most basic requirement for choice-based definitions is that the own occupation definition of disability remain constant for the full benefit period.  Additionally, individual policies don't have an income loss requirement.  Perhaps most importantly, individual policies typically have no requirement to exhaust possible work modifications or what are referred to as accommodations.  

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• There is more flexibility to waive the pre-existing condition limitation.  This can be important in meeting employee expectations of how coverage will perform - which is that they are covered regardless of medical history, like with medical insurance.

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• Rate stability is excellent.  Premiums are typically guaranteed not to increase until age 65.   However, this does not mean it's less expensive.  Individual insurance unit costs are almost always higher than group insurance, possibly exceeding 3% of payroll for members who are older or in low paid occupations. 

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Group disability insurance is optimized for cost and convenience, while individual disability insurance is optimized for financial security and choice.  

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Both types are available without medical underwriting and may be paid by employees if the demographics and plan design are right.

For more information about disability insurance for your company, call today. 

About Disability Underwriters

Disability Underwriters is a Seattle-based independent insurance agency specializing in disability insurance and is a trade name for Rip Curtis, a licensed insurance agent in all fifty (50) states.  Rip has twenty-three (23) years of experience in disability insurance and is a Certified Employee Benefit Specialist (CEBS).

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Rip W. Curtis