Common Limitations of Group Disability Insurance

The word disability is commonly misunderstood and overlooked in financial planning, especially among people in their 20s and 30s. However, disability can strike at any age, and it's important to have a plan in place to protect your income.

Group disability insurance is often offered by employers as a benefit, but it has some serious limitations and pitfalls that employees should be aware of:

• Lack of portability: If you leave your job, you lose your coverage.

• Limited coverage: Benefits are typically limited to 40-60% of your income, up to certain limits. Coverage may or may not include overtime, bonuses, incentive pay, RSUs, and retirement benefits.

• Tax implications: Disability benefits are often taxable (if the premium is paid by your employer).

• Strict definition of disability: Group disability insurance policies may have a strict definition of what qualifies as a disability.

• Disability insurance definitions vary widely, from the most favorable "own occupation" definition, which pays a portion of your income if you are unable to perform the duties of your current job (and typically requires the highest premiums), to the least favorable "any occupation" definition, which only pays if you are unable to work in any job, even if it is not the one you have studied and trained for.

Examples:

• Google's disability insurance does not cover RSUs, bonuses, or incentive pay.

• Microsoft's disability insurance does not cover stock awards.

• Amazon's disability benefits are fully taxable.

What you can do:

• Ask your HR for a certificate of insurance for your group life insurance and group disability coverage.

• Understand the terms and conditions of your group disability policy thoroughly.

• Consider purchasing an individual disability insurance policy to supplement your group coverage and provide you with more flexibility, customization, and security.

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