Limitations of Employer's Group Life and Disability Coverage

Edward Goldstein |

You intuitively know that the purpose of Life and Disability Insurance is to provide a critical safety net for you and your loved ones in case of unforeseen circumstances.  However, it is also a topic you may take for granted, believing you are fully protected by your Employer’s Group Life and Disability Coverage.   Unfortunately, you may not realize that relying solely on employer-provided coverage will leave you underinsured and exposed due to the correctable potential risks and gaps below.  

  1. Limited Coverage: Basic group life insurance policies typically cap coverage at low amounts, such as one to two times your annual salary, often excluding bonuses.   Likewise, a typical company provided Long-Term Disability (LTD) coverage covers only 60% of your BASE income and is treated as Taxable Income, potentially leaving you with insufficient cash flow to maintain your lifestyle or meet your financial obligations, especially if you have a high income or rely heavily on bonuses or commissions.  Hence, while the Group Coverage is a good start, relying on them alone could leave you underinsured, especially if you have dependents or significant financial obligations.
  2. Group Disability coverage is not True Own Occupation Based: Most employees do not realize that Group Disability Plan Coverage uses the broad “Any Occupation” definition criteria, meaning that to be eligible for benefits, you will need to demonstrate an inability to perform any job that reasonably suited for them based on education, experience, and age.  This point strongly diverges from the true “Own Occupation” definition contained in outside disability plans.  Such plans may allow you to work in another profession and not lose benefits.
  3. No partial disability coverage: Group disability policies do not typically cover partial disability situations where an employee can only work part-time.  Individual disability policies, however, allow for partial disability riders that can provide prorated benefits if you can only work part-time.
  4. Loss of Group Life Insurance while on Disability: Did you know that if you are out on disability, you may lose your group life insurance coverage as you are no longer on the company payroll when switched to State Disability compensation?
  5. Lack of Portability: If you change jobs, lose your job, or retire, you may lose your coverage, leaving you unprotected during a potentially vulnerable time.  Additionally, it can be especially problematic if you have a pre-existing condition, making obtaining new individual coverage more difficult and expensive.
  6. No Group Cost of Living Adjustments (COLA): Individually owned policies offer various options addressing this shortfall risk.

Thus, while Group Coverage provides an excellent start, we can work with you to address planning risks and concerns to bring clarity and peace of mind.

If you want to explore potential solutions for your needs, please use the “Click for Free Consultation” button.

Edward C. Goldstein, CFP®, MBA, President
Financial Life Planning, LLC
10,000 Lincoln Dr. East, Suite 201
Marlton, NJ  08053
Phone: 856-988-5480
Fax: 908-292-1040