Group Disability Insurance - Benefits and Income Tax Implications
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.
Mutual Funds & ETFsDiscover analyses of the top three California municipal bond mutual funds, and learn about their characteristics, historical performance and suitability.
Mutual Funds & ETFsFind out why mutual funds are not insured by the FDIC, including why the FDIC was created and how to minimize your risk with educated mutual fund investments.
InvestingThe further you fall, the harder it is to climb back up. It’s a universal truth that is painfully apparent in the investing world.
Personal FinanceMany advisors display similar skillsets that can make distinguishing between them difficult. The following guidelines can help you better understand their qualifications and services.
ProfessionalsAmong the best universities for financial planning are the University of Georgia, Boston University, The College of Financial Planning, Texas Tech, San Diego State, Baylor, Fairleigh Dickinson ...
Investing BasicsDon’t skimp on the CFP designation. Here's why those three letters show that someone is qualified in financial and investment planning.
Mutual Funds & ETFsDiscover detailed analysis and information about some of the top exchange-traded funds (ETFs) that offer exposure to the investment-grade corporate bond market.
InvestingWhile recent market volatility is leading investors to look for the nearest exit, here are some suggestions for bond exposure in attractive sectors.
Mutual Funds & ETFsDiscover detailed analysis of lower-risk, higher-return balanced mutual funds, and learn about the characteristics of this type of mutual fund.
InvestingBeing in the stock market for so long I tend to look at the world through the eyes of a trader, but how to decide when we are presented with two options?
The excess return that investing in the stock market provides ...
The amount of risk that an insurance company retains after subtracting ...
Coverage that provides financial protection to investors, financial ...
The maximum loss from a peak to a trough of a portfolio, before ...
The absolute level of a fund's investments.
A technique used by insurance companies to calculate loss reserves.
While your auto insurance company cannot pull your full motor vehicle report, or MVR, it does pull a record summary that ... Read Full Answer >>
Mutual funds split in the same way that individual stocks split, but less often. Like a stock split, mutual fund splits do ... Read Full Answer >>
While the majority of financial advisors work for financial institutions such as banks, a large proportion of them are self-employed ... Read Full Answer >>
If you are older than 59.5 and have been contributing to your IRA for more than five years, you may withdraw funds to pay ... Read Full Answer >>
The Federal Deposit Insurance Corporation, or FDIC, is a government-run agency that provides protection against losses if ... Read Full Answer >>
If you are over 59.5, or separate from your plan-sponsoring employer after age 55, you are free to use your 401(k) to pay ... Read Full Answer >>