Group Long-Term Disability (LTD) Insurance is a valuable benefit for company employees and also helps attract and retain new employees. Group LTD typically offer employees a 60% salary continuation in the event of a long-term disability. The normal company plans have a monthly maximum benefit of $5-$10,000. This benefit is usually free or associated with a very small cost to the employee.

Group LTD is a valuable benefit to have but there are a few questions that need to be considered;

• Are benefits taxed during a claim?
   
• Are commissions and bonus income covered?
   
• Can employers cancel their LTD benefits?
   
• What is the quality of the benefits compared to an individual policy

Are Group LTD Benefits Taxable?

Benefits are taxed just like regular income if the employer pays the premiums. It is very common for companies to pay for LTD benefits for their employees, and when they do that means the 60% income replacement people thought they had is actually much less after taxes. This may be alarming to most as few people can maintain their way of life if they have to live off less than 60% of their current income.

Are Bonus & Commission Income Covered?

Some company LTD plans do cover bonuses or commission income and many do not. You have to read the actual benefits booklet to find out if your plan does cover any income derived from bonuses or commissions. This is something that is usually very surprising to people who have never taken the time to read the actual benefits they have.

The best way to cover any bonus or commission income is to purchase a supplemental disability insurance policy for yourself.

Can Companies Cancel or Drop the LTD?

Companies can cancel their group LTD program, usually to cut costs. It is typically non-convertible to an individual disability insurance policy. You may lose your coverage if you switch to another employer that does not offer this type of benefit. You will then have to purchase an individual policy on your own if you are healthy enough to qualify. 

What is the Quality of the Provisions in a Group LTD Policy?

A Group LTD policy typically contains an “own-occupation” definition of disability while on a claim for an initial period (often two years). If you remain disabled, benefits will then only continue if you are unable to work in any occupation in which you are suited by education, training, or experience. This definition may limit the number of scenarios for which benefits are payable by the group carrier and may limit the length of time for which those benefits will be payable.

Supplemental disability insurance would help close the gap in coverage presented by group LTD. An individually owned policy will allow more income coverage due to the tax-free nature of benefits (assuming premiums are paid for by the individual on an after-tax basis).

Individual disability insurance policy Forms 18ID, 18UD, and 18GI are underwritten and issued by Berkshire Life Insurance Company of America, Pittsfield, MA, a wholly-owned stock subsidiary of The Guardian Life Insurance Company of America, New York, NY. Product provisions and availability may vary by state. In New York: These policies provide disability insurance only. They do not provide basic hospital, basic medical, or major medical insurance as defined by the New York State Insurance Department. For policy form 18ID, the expected benefit ratio is 50%. For policy forms 18UD, 18GI, 18UD-F, and 18GI-F, the expected benefit ratio is 60%. The expected benefit ratio is the portion of future premiums that the company expects to return as benefits when averaged over all people with these policy forms.

This material contains the current opinions of the author but not necessarily those of Guardian or its subsidiaries and such opinions are subject to change without notice.