Often times employers provide health insurances to their employees. Disability insurance is one of the various benefits provided by an employer to his employees and includes coverage for dental, life insurance and even extended healthcare. Group Disability Insurance provides both short term and long term protection to employees.
A short-term group disability plan, on the occurrence of an unforeseen illness or injury to the employee, replaces a percentage of the employee’s earnings to a maximum amount. It usually starts to post a waiting period of 1-2 weeks and lasts for a maximum of 6 months.
A long-term disability insurance plan is used when the employee is rendered unhealthy due to an illness or injury that can last for years. In this case, the employer can pay up to 60% of the employee’s wages so as to help him manage his needs and provide financial support in a time of need.
However, both of these are subject to certain limitations which include:
- Limited Protection: The payment of benefits from group disability insurance replaces the employee’s earnings at a high rate often ranging between 50%-80%, and if paid for by the employer, it is also taxable. For people who earn minimum wage and make just enough money to make ends meet, a 50%-80% replacement of earning would cause serious financial problems.
- Lack of Portability: If an employee changes his job, his group disability insurance is rendered useless since it is not portable, and leave the employee with no coverage on account of a job change.
- Reduced benefits: Payments of disability insurance are subject to a maximum amount overall. The maximum motivates people to go back to work as soon as possible and also prevents the employee from earning more than he did before being disabled.
- Lack of choice: Under this plan, premiums are not fixed or guaranteed but instead are adjusted on a year to year basis. Since it is provided by the employer, the term and coverage are decided by the employer, and the insurance company and the employee have no real say in the plan design.
Insurance can be bought or provided by your employer as Group Disability Insurance.