The employer and insurer determine the monthly income replacement percentage based upon what the employee earned prior to the onset of disability. Short-term policies may replace anywhere from 50% to 100%; long-term policies often replace 60% of income. Plans typically require that the employee satisfy an elimination period. It is the period of time for which benefits are NOT paid after you file a claim. The elimination period begins the day after your last day worked (LDW) and stops on the last day indicated in your policy. This means if your plan has a 90 day elimination period, benefits would begin on the 91st day after your last day worked.
Income Tax Implications
Benefits that a disabled employee receives are tax-exempt for that portion of the premium that the employee pays and taxable for that portion of the benefit that the employer pays. Taxable may be defined as being subject to federal and state income and FICA tax.
Conversion to Individual Plan
Group disability policies are usually neither portable nor convertible when one leaves one's employer.
Integration with Other Income
Benefits may be offset by any payable under social security, worker's compensation or coverage from another disability in force. Examples of other sources of income that would not be used to offset benefits payable under a group policy are:
- 401(k) plans
- profit sharing plans
- thrift plans
- tax sheltered annuities
- stock ownership plans
- non-qualified plans of deferred compensation
- pension plans for partners
- military pension and disability income plans
- credit disability insurance
- franchise disability income plans
- a retirement plan from another Employer
- individual retirements accounts (IRAs)
- individual disability income plans
- salary continuation or accumulated sick leave plans.
Analysis and Application
A financial planner is of value to the client who may well need assistance in navigating the rules of a group plan to determine eligibility, extent and duration of coverage, taxability of benefits and the submission of a claim.
Group disability insurance is a critical piece of any benefit package, yet not offered sufficiently by employers. Many of the provisions that apply to individual plans in terms of definition of disability, benefit provisions and length of benefit period apply to group plans equally. Different are the simplified underwriting requirements and lower cost afforded participants under group arrangements. Planners and their clients would do well to understand how these policies work and how to benefit from them.
InsuranceWhat you need to know about group and individual disability income coverage.
InsuranceLearn to translate this complicated policy so you can rest assured you're covered.
Financial AdvisorDisability is a very critical type of insurance that most individuals should consider carrying. When it comes to your personal finances, long-term disability can have a devastating effect if ...
Managing WealthThose with high incomes really can’t afford to be without disability insurance. Here's why.
InsuranceSocial Security benefits can be hard to collect. Find out why you need disability insurance to protect your income, and learn how to choose the right policy for you.
Financial AdvisorWhat every small business owner or professional needs to know about individual and business overhead disability income insurance plans.
Financial AdvisorHere's how financial advisors can help clients with disabilities arrive at the best solution over the long term when it comes to planning for retirement.
RetirementWhen it comes to qualifying for Social Security Disability Insurance, you either do or you don’t. Here's how to find out if you do and how to apply.
Financial AdvisorGoing on disability can be a stressful time financially. Here are 3 steps to take on disability to help protect against significant financial blowback.
TaxesDue to the Achieving a Better Life Experience (ABLE) Act, many people with disabilities will have an easier time financing their lives, starting in 2016.