It is bizarre that very few financial advisors would suggest relying solely on Group LIFE; however, these same advisors have no problem allowing their clients to depend entirely on their Group Long Term Disability insurance. I will certainly not dispute that the amount of the Group Life insurance may well be inadequate, but other than needing more insurance, there is absolutely nothing wrong with the underlying protection.
On the other hand, there are significant holes in Group Long Term Disability insurance. Even if the group life insurance is all that a client has, the insurance can be converted on leaving the company, regardless of the insured’s state of health. This is rarely true of LTD and, even when it is, there may be requirements that the client be employed; requests for proof of income, or limitations on the policy wording. To my knowledge, one carrier actually seems to use group terminology for their converted individual policies. (This is not a good thing for clients) More on that in the next paragraph.
Group LTD generally protects only against total disabilities – or requires that partial disabilities be preceded by a period of total disability, which may work in the case of a heart attack, but has significant issues in the case of cancer or anything progressive or degenerative. Further, if you are someone who would continue to work, though not at full capacity, or if your job is consultative or communication-based, a total disability is not easy to imagine. I earn my living with my brains and my mouth; as long as I can think and talk, I am able to work.
Many group plans protect you for only 2 years if you cannot do your own job. Thereafter, they will probably require that you be unable to do any reasonable job. Yes, there is jurisprudence that states that new job must give you at least half of what you were previously earning, but how many of us could handle our obligations at half our current pay? Also the job does not have to be available, you just must be deemed capable of doing it. Insurers tend to get very theoretical here. I remember the father of a former co-worker who was deemed capable of returning to work as a file clerk. Even if we accept that the job would probably meet the income requirement (he had been a handyman at a school) there was one problem. He had a significant back problem. He would have very little problem working in the top drawers but would have a HUGE problem accessing the bottom ones. Also, when faced with a choice between hiring a healthy employee versus hiring one returning from 2 years of disability, which one would the new employer be more likely to hire? Yes I know discrimination against the disabled is illegal, but employers can always find an excuse.
Exclusions: Individual plans generally exclude pre-existing conditions (e.g. I have had a back problem since I was 5 – due to polio – and they will not cover that); any disability due to a war; any disability incurred while you are in prison; and any disability due to normal pregnancy (complications are generally covered). Group Disability will generally exclude many more conditions and some of those exclusions (self-inflicted injuries and criminal acts) are NOT as innocent as they may sound.
“Not portable” – if you lose – or leave – your job, almost no group insurance will follow you (and if it does, the coverage may be restricted. What happens if you get laid off? Fired? Just decide to leave? Based on Statistics Canada numbers, we have 3 careers and 8 employers over our working lifetimes.
“Only what you personally declare to the tax man” is covered. If you are self-employed (particularly if you are incorporated) – or if you “split income” with family members – or if you have “perks” which do not show up on your tax slip – group will not protect it. Individual policies will.
“What happens if my income drops?” With Group – so does your coverage. Individual? Stays the same
“What happens if I change occupations? Leave the country?” You lose your group in most cases. Individual coverage? Follows you – and prices and conditions do not change.
“What happens if my disability is intermittent?” The vast majority (over 90%) of group plans will not pay until the disability becomes permanent. Individual plans are MUCH more flexible.
“What happens if I choose to continue working beyond the “normal” retirement age of 65?” Your group terminates – individual continues
Individual offers a better definition of what constitutes disability, it offers coverage for both “total” and “partial” disabilities - Group only covers “total;” Individual also offers fewer exclusions.
Up next: The most important reason to buy Individual versus Group still to come…
Click these for more information on the respective topics :
Long Term Care Insurance
Disability Insurance
Critical Illness Insurance
Life Insurance
Mortgage Insurance
Click these for more information on the respective topics :
Long Term Care Insurance
Disability Insurance
Critical Illness Insurance
Life Insurance
Mortgage Insurance
