The reality of workplace disability income insurance

This article will ... Note that many people rely on group long-term disability insurance. Describe the shortcomings of such plans, which some people might not be fully aware of. Point out the control and protection individual disability income insurance provides.

Most people feel confident with the group long-term disability income insurance provided by their employer — until a claim becomes necessary. At that point, the limitations of workplace disability coverage can become strikingly clear.

Imagine your boss announces the following changes to your compensation package:

1. Starting today, your pay is cut in half.
2. You can no longer contribute to your 401(k).
3. In 6 to 9 months you will be dropped from the company’s health plan and have to go on COBRA.¹
4. You can’t leave or switch jobs; you must stay in your current position.

If this scenario sounds unappealing, you’re not alone. Yet this hypothetical aligns closely with the consequences of relying solely on an employer's group long-term disability (GLTD) insurance.

GLTD limitations

If you become disabled and only have access to employer-sponsored GLTD insurance, the terms of that policy are nonnegotiable, often leading to the following limitations:

1. Reduced Income. GLTD policies typically cover only about 60 percent (sometimes less) of your salary. Adjusting to this reduced income during a period when medical bills and other expenses may increase is no small feat.
2. No Retirement Contributions. Group disability plans rarely allow contributions to 401(k) accounts during the period of disability, which can compromise long-term financial goals.
3. Loss of Health Insurance. After about 6 to 9 months, most employer plans cease providing health coverage for those on disability, leaving you with COBRA, a temporary and often costly health insurance option.
4. No Job Flexibility. You can’t leave or switch jobs. You must stay in your current position because you are disabled.

One of the most troubling aspects is that you might not even qualify for benefits, depending on how your group plan defines “disability.” Some plans only pay if you’re completely unable to work at any job, not just your current one.

So, if you’re thinking you’ll be fine because you have GLTD coverage, you may want to check the fine print. You could be relying on a plan that won’t even pay out when you need it most.

Taking control: Your own disability protection

Having your own disability income insurance can help counter these problems with group long-term disability insurance plans. (Disability insurance income calculator)

Here’s what individual disability income (DI) insurance can do for you:

1. Higher Income Replacement. By supplementing individual DI coverage to your group LTD plan², you can protect more of your hard-earned income — and the benefits are generally non-taxable³.
2. You’re in control. Unlike your GLTD plan, where the terms are set by your employer, individual DI insurance is customizable. You get to decide what coverage you need and for how long.
3. It goes with you. With individual DI insurance, your coverage isn’t tied to your job. It is portable, so it stays with you, no matter where you work.

While GLTD insurance may seem sufficient, it often falls short under real-world conditions. Supplementing this coverage with an individual DI policy² not only helps increase your financial security but also empowers you to manage the uncertainty that can accompany a disability.

Discover more from MassMutual …

Protecting your paycheck: A cautionary tale

A resource guide for adults with a sudden disability

Uncomfortable truths about disability that may surprise you

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