Most physicians are offered attractive packages when they sign on with a new employer, from a dedicated parking space to attractive signing bonuses and more. However, one of the most valuable benefits any employee can have is disability insurance. While some may have an individual policy and others a group policy, the coverage holds value. Let’s take a closer look at what disability insurance is, and the pros and cons of both group and individual plans.
What is Disability Insurance?
Disability insurance is basically a form of insurance coverage that protects your paycheck. The coverage protects your income in the event that you become disabled either for the short term or the long term. The disability plan will replace a portion of your paycheck with benefits paid out to you each month. For those who are out of work due to a disability for weeks or months, it can mean the difference between paying your bills and filing for bankruptcy.
Individual Disability Insurance Pros
With individual disability insurance, you are the owner of the policy and pay premiums out of your own pocket. The advantage of having an individual policy is that the coverage will follow you regardless of where you work. Beneficiaries are able to tailor their plans to fit their needs and even their budget. When buying an individual plan, the beneficiary is able to select exactly what percentage of their income is replaced in the event they become disabled. The elimination period for disability insurance for this type of policy is usually shorter than a group policy, which is another positive aspect of this coverage type. There are also no taxes taken out of the benefits since the premiums are self-paid and not part of a remuneration package.
Individual Disability Insurance Cons
The advantages of an individual policy are enticing, but there are some drawbacks to consider. For one, these types of policies have a higher out-of-pocket cost than group plans. Another drawback is that those seeking an individual policy will have to undergo a medical underwriting. Depending on the beneficiary’s age, this may also mean a medical examination.
Group Disability Insurance Pros
Group disability coverage is a great perk that many employers extend to their employees, especially physicians. The advantage of a group plan is that obtaining coverage is simple, and in most cases, the employer will pay for the policy. In the event that the employer doesn’t pay for the policy, it is usually offered as a discount to the employees. Because of the group nature of this type of coverage, there is no need for health screenings to qualify. For those with chronic health concerns, this is a huge bonus.
Group Disability Insurance Cons
That being said, group disability insurance is not always the best option. One of the biggest disadvantages is that the coverage won’t go with you if you leave the job. This may leave employees without coverage for a short or long period of time between postings. Another con of group coverage is that benefits are taxed. Group policies also only cover a maximum of 60% of a salary, which will be closer to 45% after taxes. This may have a dramatic effect on future money management which many people fail to take into account.
The Bottom Line
There is no denying that disability insurance is a critical part of a professional’s financial planning efforts. Both group coverage and individual policies have advantages and disadvantages to consider. In some cases, it is best to accept group coverage from an employer and supplement that coverage with a private policy. Speaking with a financial advisor is the best way to determine which option is the best for your situation.
Heather Blacksmith has a Bachelor’s Degree in Finance and works at a finance firm based in Seattle, Washington. She specializes in small business finance, credit, law, and insurance. When she is not working, she spends her time in her favorite coffee shop writing on various finance-related topics. Other than that, she enjoys adult coloring books, recycling, and running.