There are distinct advantages and disadvantages of group long- term disability income insurance, which will be the focus of this discussion. Also included will be the topics of taxation, benefit amounts and definitions of disability, accompanied by relevant example. Lastly, possible individual disability income alternatives or compliments to group LTD will be presented. Advantages/Disadvantages of Group LTD
Inherent in group LTD are advantages as well as disadvantages for individual workers as well as the employers who are providing the benefit. For individuals, the group LTD offers the opportunity to receive protection from loss of income in the event of partial or total disability for no cost in some situations, and low cost in others. This benefit is possible because the group insurance aspect of the LTD allows for lower premiums when the individual, employer or combination of the two assumes the responsibility of payments (Hill).
Conversely, there may be disadvantages to both parties; for example, if employers are somehow enabled to manipulate the system, an employer could be plagued with premium increases, or if employees incur a disability, they may be disqualified from benefit payments or if there is a waiting period before benefits are payable, the employee could suffer financial hardship (Hill). Taxation, Benefit Amounts, Definitions of Disability
Just as one would encounter with conventional earned income, the payments received from LTD are taxable; however, of course, there may be tax benefits if the individual has substantial medical expenses that may be deductible. Typically, the benefit amount that the individual receives is 95% of their income prior to the disability. Because the term “disability” is used with regularity, it is important as well to define disability.
In the vast majority of LTD policies, the disabled individual is first required to be disabled for a period ranging from 3-6 months before qualifying for benefits, which again begs for the definition of disability which means, during the first 12-24 months, the individual is considered disabled if they cannot perform the essential functions of their current occupation, but is broadened after 24 months to include the ability to engage in any type of gainful employment (Hill). Possible Alternatives/Compliments to Group LTD Lastly, possible alternatives or compliments to Group LTD are important to discuss.
An excellent example of an alternative which has gained popularity in recent years is Long Term Care Insurance, which will pay a daily benefit amount when an individual requires medical treatment due to injuries that compromise the ability to accomplish activities of daily living (ADLs) such as bathing/feeding/dressing oneself, conducting personal hygiene and the like. This benefit can be supplemented with Social Security Disability Income (SSDI), personal savings, and the welfare benefits offered by individual states, which of course vary from state to state (Hill).