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Is group disability insurance right for me?

Get income protection through your employer, but you can’t customize your policy.

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Fact checked

Most US employers offer disability insurance in their employee benefits package. These policies are pre-determined coverage agreements between your employer and the insurance company. You’ll be able to opt-in or opt-out of coverage, but you won’t have much say in the policy details.

What is group disability insurance?

Disability insurance replaces a percentage of your income if you suffer a covered illness or injury that leaves you unable to work. If your employer includes disability in your insurance package as an employee benefit, your employer may pay a portion or all of the premium. Two types of disability coverage are offered.

  • Short-term disability. After you’ve passed the specified waiting period listed in your policy, this coverage pays out a weekly percentage of your income until you can return to work. Group short-term disability usually lasts between six weeks and six months, and covers events such as postpartum recovery, a prolonged illness or recovery from a surgery.
  • Long-term disability. If your illness or injury makes it impossible for you to work long-term, this coverage kicks in after your short-term disability runs out. How long your coverage lasts depends on your policy. Some policies prescribe a time limit, such as five years, and others pay out until a specified age, such as 65 years old or social security retirement age.

How does group disability insurance work?

After signing up for group disability through your employer, all or a portion of the premium is deducted from your paycheck each cycle. Your benefits stop when you leave your job, unless your policy includes a portability option, which allows you to take your coverage with you when switching employers.

To begin receiving disability payments:

  1. File a claim. Your claim should include documentation that you qualify for the coverage and a doctor’s sign-off. Most insurers offer telephonic claims with representatives to help walk you through the process. If you have a planned disability, such as a surgery that requires recovery or the recovery period after the birth of a child, you can fill out your disability claim paperwork while planning your leave.
  2. Fulfill the waiting period. A typical waiting period lasts anywhere from one to two weeks for short-term disability and three to six months for long-term disability. You may be required by your job to use your paid leave during the waiting period.
  3. Receive payment. Short-term disability checks are issued weekly, and long-term checks are issued monthly.

Are my disability benefits taxable as income?

If you pay your premium in-full with post-tax dollars, you don’t have to pay taxes on your disability income.

If your employer pays part of your premium and you pay the rest with post-tax dollars, you only have to pay taxes on the portion of your disability payments equal to the percentage your employer paid. For example, if you and your employer split the premium 50/50, you pay taxes on 50% of your disability benefits.

If your employer pays 100% of your premiums, or if you pay your premiums with pre-tax dollars, then your full disability benefit payment is taxable as income.

Is group disability insurance worth it?

Whether you’re planning to have a baby or want to have income protection for an unexpected injury or illness, group disability insurance is usually worth it. Group disability premiums can be as low as $5 to $10 per paycheck and are often subsidized by your employer. In exchange, you get peace of mind knowing that if something happens to you, you’ll still have a portion of your paycheck, usually 60% or more, depending on the policy.

Pros and cons of group disability insurance

Pros

  • No medical exam required. As a group policy, your health condition isn’t relevant to the premium you pay for disability insurance. But most policies do have a pre-existing conditions clause that prevents you from being covered for illnesses you had for a specified amount of time before applying for coverage.
  • Low cost. Because the policy is offered as an employee benefit, your short- or long-term disability premiums may be fully covered by your employer. But even if you’re required to pay the full premium, you’ll have much lower rates than purchasing an individual policy.
  • No complicated application process. Signing up for group disability insurance is usually as simple as checking a box to opt in during your employer’s enrollment period.

Cons

  • Nonportable. If your policy doesn’t include portability, your coverage ends when you leave your employer.
  • Generic policy. As a group policy, you likely won’t have the option to customize it to meet your needs.

Compare group disability insurance

Data indicated here is updated regularly
Name Product Coverage Amount Benefit period Waiting period Own Occupation Medical exam required Online quote
Policygenius Disability Insurance
$100 to $20,000
2, 5, or 10 years or until age 65 or 67
60 - 365 days
Yes
Depends on provider
Yes
Get matched with one of 15 top life insurance companies to find the best coverage and rates for you.
Breeze
$500 to $20,000
1, 2, 5, or 10 years or until age 65 or 67
30 - 365 days
Yes
No
Yes
This startup offers some of the most riders and benefits backed by an established underwriter.
LeverageRx
$100 to $20,000+
1, 2, 5, or 10 years or until age 65 or 67
30 - 365 days
Yes
Depends on provider
Yes
LeverageRx is a digital lending and insurance marketplace exclusively for medical professionals.
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Compare up to 4 providers

Alternatives to group disability insurance

If you’re set on income replacement, your main alternative to a group disability plan is an individual plan. Your coverage stays with you for as long as you pay your premiums, regardless of employment. And, you’ll be able to customize the key elements of your policy, such as the length of your waiting period and the percentage of your income replaced.

However, you could also rely on:

  • Social security disability insurance (SSDI)
  • Workers’ comp
  • Life insurance
  • Self-insurance

Can I get group disability payments and SSDI payments?

SSDI benefits don’t kick in until you’ve been out of work for at least six months, which means you’ll be receiving long-term disability payments while you wait for your SSDI benefits to start.

Your long-term disability plan usually includes a set amount of time it will pay benefits before offsetting with other payments you may be receiving, such as workers comp or SSDI. This time period is typically six to 12 months. Once this time passes, your long-term disability will pay you the difference between your Social Security payment and your long-term disability payment.

For example, if you get $2000 per month from your long-term disability policy and get $1,500 a month from Social Security, you’ll only get $500 a month from your disability policy insurer after offsets.

Bottom line

A group disability insurance plan is one of the most affordable ways to protect your income if you’re unable to work after a disability. And if your employer subsidizes the cost of your premiums, you may even get coverage for free. But you’ll have no say in how the policy is crafted or which add-ons your policy includes.

To consider an individual policy or a way to subsidize what your employer offers, shop around to find the coverage that suits you best.

Frequently asked questions about group disability insurance

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