NH money advice: Understanding group disability insurance

Advice offered by Marc Hébert, president of The Harbor Group Inc., certified financial planner. If you have any financial questions or would like to suggest a future topic, email [email protected] When people think of their most valuable asset, they usually think of their home or their investment portfolio. But for the most part, it really is the ability to earn a living. Think about what your financial life would be like if you were unable to work for an extended period of time. Disability insurance can provide you with the income you need in the event of injury or inability to work. Disability insurance is sometimes offered by groups that have a common interest, such as an employer or a trade group. Group disability insurance can be an affordable source of this important coverage. With group disability insurance coverage, you do not receive an individual policy and you are not assessed for coverage as an individual. Instead, the policy is issued to the company or organization representing the group. Individuals in the group applying for disability insurance receive certificates of coverage rather than individual policies. There are two types of group disability insurance: short-term and long-term. Short-term coverage plans usually pay benefits for a few months, although sometimes it can last up to two years. These policies are often designed to be effective until the long-term coverage kicks in. Long-term disability coverage can pay benefits for several years or until a certain age, such as age 65. Long-term benefits are usually coordinated with short-term plan benefits so that disability coverage is continuous. When considering group disability insurance, here are a few things to keep in mind: Group disability insurance often comes with flexible pricing. During the initial or open enrollment periods, you may not be required to pass a physical exam to enroll in the plan. Indeed, the risk of disability is borne by the group rather than by an individual. Plans may have some basic benefit, but allow the participant to add other benefits for a cost. When you quit your job or end your relationship with the group, you generally cannot take your group disability insurance with you. These policies generally cannot be converted to individual policies. The benefit may be reduced by payments you receive from Workers’ Compensation, Social Security, or other government benefits. The premium can be paid by you, your employer or both. Depending on who pays the premium, the benefit may or may not be taxable. Usually, if the premium is paid before tax, the benefit will be taxable to you. This is an area you will need to discuss with your advisor. When reviewing your particular plan, consider the following: How long do benefits last once you become disabled? Are there additional ceilings depending on the type of disability? For example, is there a different time frame if the disability is due to addiction? How long is the waiting period? This is the length of time you will have to wait before receiving disability benefits. How much of your income does the policy replace? The policies generally pay a benefit equal to 50% to 66% of your gross monthly base salary. The benefit may also be capped at a monthly amount. What is the definition of disability? Generally, you must be under the care of a physician due to an illness or injury that impairs your ability to work in “your own occupation” or in “any occupation”. Disability can also be defined as any occupation for which you might be qualified based on your education, experience or training. Or, your policy definition could be a combination of your “own occupation” for a certain period and “any occupation” for later periods. It’s important to look at other aspects of your financial life to determine if disability benefits will be enough to get you through the tough times. Areas to consider are the expenses you could reduce in the event of disability, your cash reserves and your other sources of income.

Advice offered by Marc Hébert, president of The Harbor Group Inc., a certified financial planner. If you have questions about finances or if you want to suggest a future topic, email [email protected]

When people think of their most prized possession, they usually think of their home or their investment portfolio. But for the most part, it really is the ability to earn a living. Think about what your financial life would be like if you were unable to work for an extended period of time.

Disability insurance can provide you with the income you need in the event of injury or inability to work. Disability insurance is sometimes offered by groups that have a common interest, such as an employer or a trade group. Group disability insurance can be an affordable source of this important coverage.

With group disability insurance coverage, you do not receive an individual policy and you are not assessed for coverage as an individual. Instead, the policy is issued to the company or organization representing the group. Individuals in the group applying for disability insurance receive certificates of coverage rather than individual policies.

There are two types of group disability insurance: short-term and long-term.

Short-term coverage plans usually pay benefits for a few months, although sometimes it can last up to two years. These policies are often designed to be effective until the long-term coverage kicks in.

Long-term disability coverage can pay benefits for several years or until a certain age, such as age 65. Long-term benefits are usually coordinated with short-term plan benefits, so disability coverage is continuous.

When considering group disability insurance, here are a few things to keep in mind:

Group disability insurance often comes with flexible pricing. During the initial or open enrollment periods, you may not be required to pass a physical exam to enroll in the plan. Indeed, the risk of disability is borne by the group rather than by an individual.

Plans may have some basic benefit, but allow the participant to add other benefits for a cost.

When you quit your job or end your relationship with the group, you generally cannot take your group disability insurance with you. These policies generally cannot be converted to individual policies.

The benefit may be reduced by payments you receive from Workers’ Compensation, Social Security, or other government benefits.

The premium can be paid by you, your employer or both. Depending on who pays the premium, the benefit may or may not be taxable. Usually, if the premium is paid before tax, the benefit will be taxable to you. This is an area you will need to discuss with your advisor.

When reviewing your particular plan, consider the following:

How long do benefits last once you become disabled? Are there additional ceilings depending on the type of disability? For example, is there a different time frame if the disability is due to addiction?

How long is the waiting period? This is the length of time you will have to wait before receiving disability benefits.

How much of your income does the policy replace? The policies generally pay a benefit equal to 50% to 66% of your gross monthly base salary. The benefit may also be capped at a monthly amount.

What is the definition of disability? Generally, you must be under the care of a physician due to an illness or injury that impairs your ability to work in “your own occupation” or in “any occupation”. Disability can also be defined as any occupation for which you might be qualified based on your education, experience or training. Or, your policy definition could be a combination of your “own occupation” for a certain period and “any occupation” for later periods.

It’s important to look at other aspects of your financial life to determine if disability benefits will be enough to get you through the tough times. Areas to consider are the expenses you could reduce in the event of disability, your cash reserves and your other sources of income.

About Antoine L. Cassell

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