Many people are offered group disability insurance coverage as an employee benefit through work, but a group policy doesn’t necessarily offer the best protection on its own. Group disability insurance is tied to your employer, which means your coverage could disappear if your benefits are cut or if you leave your job, and it’s usually short-term, which means it may only cover you for a few months.
An individual disability insurance policy is a disability policy that you buy for yourself. It follows you, not your job, which means you’ll have coverage even if you switch employers. Also, individual disability insurance may offer additional coverage not available through a group policy, like covering extra income from bonuses and other incentives.
How does individual disability insurance work?
Disability insurance is designed to protect you financially if you are no longer able to work because of an illness or injury, like if you’re in a car accident and can no longer stand to do your job, or if you need to take time off for cancer treatment.
Individual disability insurance coverage is a policy you purchase as an individual that is not tied to your employment (as opposed to group disability coverage). You make regular payments to keep your disability policy active, and then if you’re unable to work, you file a claim and your disability insurance will pay out.
Individual disability insurance coverage is similar to other personal insurance plans, like your home or life insurance. It is subject to underwriting, which just means you may have to meet certain criteria to be approved for a policy.
And just like your other insurance coverage, you should compare disability insurance quotes from multiple companies to make sure you are getting the best possible rate on your individual disability insurance coverage.
How much will I get from individual disability insurance?
The amount you get from your individual disability insurance policy if you actually have to use it will depend on a number of factors, including how much you earn and what type of customizations you chose to have on your policy. For example, someone who opts for a longer waiting period before their benefits kick in will pay less for their coverage.
Most disability insurance policies pay out about 60% of your gross pay, but you may be able to choose higher or lower levels of coverage depending on your needs and the insurance company you choose.
You can use your disability insurance payments for normal life expenses, like buying groceries, paying your mortgage, and paying for utilities, so the best way to determine how much coverage you need is to add up your expenses and choose a policy that pays enough to cover your basic cost of living.
What are the advantages of having individual disability insurance?
Having your own individual disability insurance policy means you always have disability coverage. As long as you continue to pay your premiums (meaning your monthly or annual payments), it won’t impact your coverage at all if you lose your job, take a new job, or move to a new industry.
Also, if you are a high earner but your group disability coverage has a relatively low maximum benefit, having an individual disability policy can help you bridge the gap so you aren’t faced with a significant drop in income after an illness or injury.
And while group disability benefits are often taxed as part of your salary and benefits, payments from an individual disability insurance policy are not taxed.
What is the difference between group disability and individual disability?
Both group disability and individual disability policies are designed to provide a base level of income for disabled people who cannot work, typically somewhere between 50% and 70% of your average income.
For short-term disability policies this could last anywhere between 12 and 30 months, while long-term disability policies could potentially cover you all the way through retirement.
Even though these types of disability policies are similar, there are a few significant differences between group disability coverage and individual disability coverage that you should be aware:
Group disability insurance | Individual disability insurance |
|---|---|
Offered as a benefit through your employer | Purchased by an individual |
Coverage is offered to all eligible employees, regardless of health | You may be required to meet certain physical/health criteria before a policy can be issued |
Coverage is not portable and cost can change from year to year | The policy is yours for as long as you make the payments and the benefits are contractually guaranteed |
Cheaper than individual coverage but usually offers lower/fewer benefits | More expensive than group coverage but usually offers better benefits |
Is it better to have life insurance or disability insurance?
It is important to have both life insurance and disability insurance, but the policies offer very different types of coverage. Life insurance provides financial security for your loved ones if you pass away, while disability coverage replaces a portion of your income if you can’t work because of an illness or injury.
While there may be some situations where a person might need one and not the other, the majority of people who are old enough to work should have both life insurance and disability insurance to protect themselves financially in the event of an accident, illness, or injury.
Frequently asked questions
Is individual disability insurance worth it?
Yes, having your own disability policy means you don’t have to worry about your employer dropping your group coverage or losing your coverage if you lose your job. Also, compared to state disability insurance and Social Security disability insurance, individual disability insurance typically pays higher monthly benefits after a claim has been approved.
What are the three types of disability insurance?
The three main types of disability insurance are short-term disability, long-term disability, and supplemental disability insurance, but these aren’t the only types of disability insurance available. Social Security disability insurance, state disability insurance, mortgage disability insurance, and workers compensation are other common types of disability insurance coverage.
What is the most commonly approved disability?
Because they are so debilitating, the most commonly approved disabilities are arthritis and other bone and joint issues. Other commonly approved disabilities are respiratory issues, heart disease, and stroke.
