Employer-sponsored coverage is a great start, but it may not be enough to maintain your lifestyle if you become unable to work. Most group plans only cover a small percentage of your income. Additionally, any benefits you receive from your employer plan will be taxed as ordinary income if you become unable to work. In contrast, the benefits you receive from an individual policy will be tax-free since the premiums are paid with after-tax money.
Individual income insurance can be your only disability insurance policy (if your employer does not offer a group policy) or can act as supplemental disability insurance, which fills in the gap between your employer-sponsored plan and the amount you need to survive financially if you become unable to work due to a health complication.
Short-term group insurance provides weekly benefits for employees who are totally or partially disabled by a covered injury, illness, pregnancy or mental disorder. Typically short-term disability insurance is cost prohibitive to an individual. Therefore an individual would be better off signing up for the short-term disability insurance through their employer.
Group disability plans tend to have benefit periods to age 65, and typically provide the totally disabled employee with up to 60 percent of pre-disability income to a specified maximum such as $10,000/month. Coverage is available for both short- and long-term disabilities and often without medical evidence of insurability. Group disability insurance helps attract and retain quality employees and is tax deductible to the business.
Group disability coverage is tied to your employment. If you change or lose your job, the coverage is not portable. The cost of group coverage can also change year to year. Individual disability policies usually have higher premiums, but offer better benefits because applicants are individually underwritten.
In contrast, group benefits cover all eligible employees, regardless of their health. In the case of individual income insurance, once issued, the language, benefits, and costs are contractually guaranteed, even if you change your occupation or employment. Individual policies may also be issued with exclusions that limit claims that are due to pre-existing conditions.