Individual vs. Group Disability Income Insurance

Chicago Disability Lawyers

Whether you have purchased individual or group (i.e., employer-sponsored) disability coverage can have a significant impact on your premiums, duties, and — eventually — ability to recover benefits.

Many would-be insureds do not realize that there are material differences between individual and group disability insurance coverage, and simply choose a plan based on the projected cost.  Though cost is a perfectly reasonable factor to consider when choosing a disability policy, it’s also important to evaluate how the unique aspects of each policy might affect its “true value” given the circumstances.

Consider the following.

ERISA Qualification

Group disability policies tend to be governed by ERISA (the Employee Retirement Income Security Act of 1974).  ERISA is a federal regulatory scheme that covers employee-sponsored benefits plans, including disability plans.  Though ERISA was enacted with the intention of protecting of protecting plan participants from the abuses of fund managers and others, it has since expanded into a comprehensive insurance regulation that “replaces” state rules and implements its own.

When a claim is governed by ERISA, most state law claims are preempted. For instance, ERISA governed plans do not give rise to bad faith claims.  If your disability insurer needlessly delays the processing of your disability claim, or denies your claim with no reasonable justification, then you may bring an action against them for wrongful denial — but not action for bad faith, which might have given rise to additional damages.  This limitation has a significant impact on how insurers navigate the insurance landscape when granting disability benefits.  Insurers shielded by ERISA regulations may be more aggressive about denying or otherwise mishandling claims.

It should be noted, further, that ERISA governed plans require the exhaustion of all administrative remedies before the policyholder is entitled to file a lawsuit against the insurance company.  In some cases, two rounds of administrative review may have required before you can file a lawsuit.  This can be incredibly frustrating for the policyholder, who needs to secure benefits to cover their bills and expenses, and who has to face delay-after-delay.

Premiums and Underwriting

Group disability coverage tends to be much cheaper than individual disability coverage.  Even seemingly “small” differences in premium cost can have an enormous impact over the lifetime of the policy, which may be decades.

This lower cost is not without its drawbacks, of course.  Coverage flexibility issues plague many group disability plans: long waiting periods, expansive exclusions, strict definitions of disability, etc.  Group disability coverage may lead to reduced benefits as well.  Individual disability applicants are individually underwritten, so insurers can guarantee more substantial benefits (given that they are able to better mitigate their risks).

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Coverage Flexibility

Group disability coverage is typically stricter and less flexible than individual disability coverage.

If you are covered by a group disability plan, then the definition of disability may be “any occupation” as opposed to “own occupation,” thus making it more difficult to qualify for benefits in situations where your condition has not rendered you fully incapable of working.

There may also be more expansive coverage exclusions.  For example, while your individual disability policy might not exclude disabilities due to accidents sustained while engaging in recreational sports activity, a group disability policy (since it is not individually underwritten) must mitigate the risk and is likely to exclude coverage under such circumstances.

Further, group disability coverage may have stricter provisions relating to the Social Security and Workers’ Compensation offsets.  This can lead to a substantial and unexpected reduction in overall benefits.  By contrast, an individual disability plan that does not offset Workers’ Compensation and Social Security benefits can give you access to thousands in supplemental monthly benefits.

When attempting to determine the value of this coverage flexibility, it’s worth contemplating the reason for disability coverage in the first place.  Severe disabilities are not likely events, and the point of benefits coverage is to ensure that you have some form of compensation in place if and when such a devastating event occurs.  If you have to be concerned about securing the benefits that you’re already paying for, then that is undermining the very purpose of such coverage.

Portability Issues

As a general rule, group disability coverage is not portable.  Simply put, when you leave your job (however you do so), the coverage will terminate after a period of time.  If you are concerned about your disability coverage suddenly ending in the event that you are unemployed, or taking time off from work for personal reasons, then it’s important that you purchase an individual policy.

Individual disability coverage is portable.  In fact, individual policies do not necessarily payout based on an earnings calculation — depending on the plan you purchase, flat benefits may be an option.

Arrange for a Consultation with Our Experienced Chicago Disability Lawyers

Bryant Legal Group, P.C. is a Chicago-based insurance litigation firm representing policyholders in a variety of disputes with their insurers, including disability-related benefits disputes.

Our attorneys have decades of experience litigating disability claims on behalf of those who have been denied benefits or who have otherwise had their application for benefits mishandled by their insurer, whether they have an individual or group plan.  Unlike many of our competitors, however, we believe that the most effective representation is that which is client-oriented and thorough.  We take the time to engage consistently with clients throughout the dispute process.  This ensures that we have the information necessary to advocate effectively on their behalf.

Call 312-561-3010 or send us a message through your website to arrange for a consultation with one of our experienced Chicago disability lawyers today.

The content provided here is for informational purposes only and should not be construed as legal advice on any subject.

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