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Having a financial safety net is crucial, especially for medical professionals whose livelihood relies heavily on their ability to examine and operate.
While there are numerous financial products you can choose from, disability insurance stands out as the cornerstone coverage enabling you to feel secure about your comprehensive financial plan.
Confused about what these look like?
We do an in-depth comparison of:
- Individual Disability Insurance
- Group Disability Insurance
Comparing Individual and Group Disability Insurance
The distinction between the two boils down to how the coverage is purchased and the process by which they are underwritten.
This is not an either/or decision. Instead, we recommend that physicians should consider purchasing both if possible.
Both, like anything else, have their pros and cons. There are differences in taxability, different definitions of what constitutes a disability, and differences in how your earnings are calculated — which can often make understanding this less than straightforward.
Nevertheless grasping the nuances can help medical professionals make informed decisions about their long-term disability insurance purchases.
At Hollowtree, we distinguish between,
- Group Disability, which is Employer-Paid, and
- Group Guaranteed Standard Issue (GSI), which is Voluntary and Employee-Paid.
In this article, we’re going to focus on Group Disability, which is Employer-Paid.
What is Group Disability Insurance?
Group disability insurance is a policy offered by employers to their employees.
If you are a full-time employee at a medical practice or hospital that offers certain group benefits, chances are you have group disability insurance benefits.
Pros of Group Disability Insurance
- Cheaper: Group plans are typically less expensive than individual ones
- Instant approval: Employees are automatically eligible for coverage without needing a medical examination
- Employer-backed: Employers often pay for group plans, making them affordable for employees
Cons of Group Disability Insurance
- Group plans are non-transferable: If you leave your job, your coverage ends
- Partial compensation coverage: Group plans only cover 60% of your base salary, without considering other forms of compensation
- Benefits are usually taxable: Taxable if the employer pays the premium
Individual Disability Insurance
Individual disability insurance is an independently purchased policy.
Such a policy is ‘portable’, meaning you can retain the policy even if you move between jobs and therefore can still protect you during periods of unemployment.
Pros of Individual Disability Insurance
- Expansive coverage options: Individual plans cover many different types of income, not just your base salary, for example, you can cover any 1099 income or K1 earnings that you have
- Tax benefits: All benefits of an individual policy are non-taxable
- Individual retains control: Coverage cannot be canceled by the insurance carrier, as long as you pay your premiums on time
Cons of Individual Disability Insurance
- Cost: These policies tend to be more expensive than group policies, due to the comprehensive coverage they provide
- Tedious Underwriting Process - Requires significant underwriting at the medical and financial levels. Medical underwriting includes disclosing your full medical history and pre-existing medical conditions, and medical reports may be required. Financial underwriting requires you to present your tax returns to demonstrate proof of earnings. Overall, these underwriting requirements make the process lengthy and uncertain.
Side-by-Side Comparison
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Aspect | Group Disability Insurance | Individual Disability Insurance |
Underwriting | No underwriting | Underwriting required - the extent of underwriting depends on the benefit amount sought by the applicant |
Cost | Lower premium cost per person based on group discounts | Higher premiums but the rate is locked in at the time of purchase |
Portability | Not portable | Portable |
Taxability | Benefits are usually taxable | Benefits are usually tax-free |
Coverage | Limited coverage | Comprehensive coverage |
Income Covered | Covers base salary only | Covers various types of income |
Why Not Have Both?
After reviewing the above table, you might be considering the possibility of having both types of disability insurance policies.
Taking advantage of a group plan offered by your employer is beneficial since it comes at no cost.
An individual policy ensures coverage between jobs and across various job roles throughout your professional life.
The combined coverage of both group and individual policies can provide comprehensive protection, filling in gaps left by each plan.
Optimizing Your Disability Insurance
Ideally, your disability insurance is tailor-made to suit your needs. Whether it's getting the maximum payout, ensuring tax-free benefits, or guaranteeing portability – your disability coverage should tick all the boxes.
But the reality is that attaining the ideal plan requires more effort than applying online - the process can prove to be nuanced, like the differing carrier policy language. For example, the definition of disability can vary between a group policy and an individual policy in the same insurance carrier. In turn, this creates confusion for the person reading up on policies.
Why does this matter?
The details matter and help inform whether you, as an individual, might want to buy more or less individual coverage.
Working with a specialist disability expert will help you navigate the complexities of disability insurance.
We can help you determine how much insurance you should purchase based on your career expectations, financial situation, and personal circumstances.
What’s Next? Our Recommendation
When it comes to disability insurance, looking beyond the price tag to see the value of the individual benefits is crucial.
Given the demanding nature of the medical profession, physicians should consider supplementing their employer-provided group disability insurance with a tailored individual plan. This approach ensures comprehensive coverage and financial security, allowing you to focus on what matters most - your patients and your practice.
Remember to perform an in-depth analysis sooner rather than later to get ahead of any surprises with your coverage policy.
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