Group Disability Insurance is far more affordable than individual plans. Many business owners are looking for ways to provide much needed benefits while at the same time keeping costs down. Consequently, Group Disability Plans may be a key answer to provide much needed benefits while keeping costs down. So let’s spend some time discussing the main points of Group Disability and how it fits in your Business Succession Plan.
Group Disability is actual a single policy but one that covers a group of people. One qualification for eligibility is that the group must have some common factor. Being employees of the same company is a good example of how Group Disability would satisfy such criteria. However, having the same common factor is not the only factor for eligibility. Usually there are specific requirements of ones’ employment to be able to secure coverage under a Group Disability Plan. An example would be the employer can say to be covered under a Group plan one must be employed for 6 months.
These plans may also be contributory (employees pay the premiums), Non-contributory (the Employer covers the costs) or a combination of the two where both employer and employees share in the costs. This is one key how a Group plan may help to lower the out of pocket expenses for the employer. How can insurance companies afford this?
Because Group plans have less strict underwriting (in some cases no physical exam is needed), the cost an Insurance company bears is much lower. Yet keep in mind that to get a benefit such as this, one must accept some disadvantages. The main drawback in a Group plan versus an Individual plan is that there is no flexibility. For example, let’s say an employee would like to cover 65% of his income. If the Group plan says that only 50% of coverage is available, the employee has no choice or wiggle room to adjust the plan to meet his/her individual needs.
In addition, there is no portability in a Group Plan. If you were to leave the group, generally speaking, there is no way one can take that plan to a new employer. Nevertheless, there may be a provision whereby an employee may continue the coverage with the same insurance company but with new underwriting and a different cost structure.
Lastly, and most importantly, under Group plans the premiums may be increased. So which would be the best way to go? My belief is to find some common ground to go by which serves a majority consensus. This way you meet your goals of providing coverage and keep your cost down. This is yet another example of why a team of advisors is important. An attorney can provide legal guidance as to how you might provide different coverage for one group compared to another. A financial advisor can offer guidance as to which company would offer the best cost and what benefits can and or should be included in a Group Plan. Your tax advisor will provide expertise as to the deductibility of the premiums.