Group vs. Individual Disability Insurance: How Healthcare Professionals Can Decide

Healthcare professionals might rely on employer-provided group disability insurance plans, but group coverage alone might not be enough to protect your income fully. It’s important to consider your options carefully, including exploring group vs. individual disability insurance. Your choice can impact your financial security if you have an unexpected disability.

Although both group and individual policies can provide income replacement if a disability precludes you from working, significant differences exist between the two. Let’s explore what sets each policy type apart to help you determine the best coverage for your situation.

What is group disability insurance?

Group disability insurance is a type of disability income insurance employers can offer to provide financial protection in the event of a disability. Employers may offer short- and long-term disability insurance coverage:

• Short-term disability insurance can last anywhere from a few days up to two years. 
• Long-term disability coverage usually kicks in when the short-term benefits run out, and can continue for a few years or the rest of your life.

Your employer can cover the cost or require employees to pay policy premiums. Sometimes, it’s a combination of both — the employer covers the short-term disability premiums, while the employee picks up the tab for the long-term coverage.

Although group disability insurance can be a valuable employee benefit, it might not offer the same level of personalized income protection as individual disability insurance.

What is individual disability insurance?

 Unlike group disability insurance, individual disability insurance is a policy you purchase on your own from an insurance company. It’s a crucial consideration for doctors, dentists, and other healthcare professionals because you can customize coverage to match your needs. 

You can choose the benefit amount, elimination period, benefit period, and disability insurance riders that align with your financial planning goals.

An individual plan also opens up a stricter definition of disability, which is crucial. How your policy defines a disability determines your eligibility for benefits. Different policies have different definitions. The most common are “own-occupation” and “any-occupation” coverage. 

With own-occupation coverage, you could be eligible for insurance benefits if you can’t perform the substantial duties of your specific profession, even if your disability doesn’t necessarily prevent you from working in a different line of work.

Group vs. individual disability insurance: Key differences

Group benefits provide a safety net for a wide range of employees with different needs and occupation types, which can result in a one-size-fits-all approach. Individual disability coverage lets you tailor your policy to your occupation and income. 

Here are additional key differences to consider before purchasing a policy.

Factor	Group disability insurance	Individual disability insurance
Definition of disability	Any-occupation	Own-occupation
Benefits	Approximately 50% to 70% of any salary	Approximately 50% to 70% of salary
Portability	Tied to employment	Not tied to employment
Taxability	Taxable benefits (if employer covers premiums)	Tax-free benefits
Residual coverage	Not usually offered	Available as a rider
Exclusions	May exclude pre-existing conditions or mental health issues	Fewer exclusions when adding optional riders
Types of income covered	May protect base salary only	Can include bonuses, commissions and other compensation
Cost	Lower premiums	Higher cost
Offset	Yes	Yes

Group disability insurance

Group disability insurance is usually part of the benefits package offered by employers. It provides financial protection at a low cost since premiums are spread out among a larger group. However, it’s less flexible and can't be customized like an individual policy.

• Definition of disability: Many group plans require you to be totally disabled to receive a monthly benefit and may use an “any-occupation” definition. If you can’t work in your specialty but can work in any other profession, you may not qualify for a disability claim.
• Benefits: Disability benefits typically range from 50% to 70% of your income. However, the specific percentage depends on the terms of the insurance policy.
• Portability: Group coverage is employer-provided and contingent on your status as an employee. If you switch jobs or start your own practice, you can't take it with you.
• Taxability of disability benefits: You'll pay income tax on disability benefits when your employer pays policy premiums. Because it’s taxable, it reduces the amount you receive.
• Residual coverage: Residual coverage provides benefits if a disability results in a partial loss of earnings. However, group policies often don’t include residual coverage.
• Common exclusions: Group disability insurance may have specific exclusions, such as pre-existing conditions, mental health issues, or alcohol or substance abuse disorders.
• Types of income covered: A group plan will often calculate your benefit amount using your base salary only.
• Policy cost: Group policies are often much less expensive. However, policies can lack the protection you need to safeguard your income if you become disabled.
• Offset provisions: You may be forced to apply for Social Security disability if you receive group disability benefits. This allows the insurance carrier to reduce your benefits by the amount you receive from Social Security.

Individual disability insurance

Unlike employer-provided coverage, individual disability insurance is a personal policy that you buy on your own. You have more control over the coverage amount and can customize it to align with your goals.

• Definition of disability: Individual coverage allows you to choose an own-occupation policy, which defines disability as the inability to perform the duties of your occupation. This allows you to qualify for benefits even if you can still work in another role.
• Benefits: Like group coverage, the amount you receive depends on your policy terms. However, it typically ranges from 50% to 70% of your income.
• Portability: Individual disability insurance is portable, meaning your coverage follows you regardless of where you work. It allows for continuity of coverage and greater peace of mind.
• Taxability of disability benefits: When paying premiums out of your pocket using after-tax dollars, you won’t pay income tax on the benefit amount.
• Residual coverage: Adding a partial and residual disability benefit rider allows you to qualify for benefits even if you don’t meet the criteria for a total disability.
• Common exclusions: Your policy may have exclusions, but you can purchase riders to increase your protection.
• Types of income covered: In addition to your base salary, individual policies can use bonuses and commissions to calculate your benefit amount.
• Policy cost: Individual policies often come at a higher cost than group coverage. However, you can customize an individual policy to provide better protection.
• Offset provisions: Like group policies, individual plans may offset your benefits with other sources of income, such as Social Security or another disability policy.

Pros and cons of group vs. individual disability insurance

Your ability to work and earn a living is crucial. To safeguard your income from a disability, you need a solid plan in place. Let’s look at the advantages and disadvantages of group vs. individual disability insurance.

Group disability insurance: Pros and cons

Pros:

• Lower premiums
• No medical underwriting
• Simplified enrollment process

Cons:

• Broad disability definition makes eligibility difficult
• Loss of coverage if switching employers
• Benefits could be taxable

Individual disability insurance: Pros and cons

Pros:

• Stricter disability definition makes eligibility easier
• Continued coverage when changing employers
• Benefits aren’t taxable income

Cons:

• Higher premiums
• May require medical underwriting
• Pre-existing conditions complicate policy approval

How to choose between group and individual policies?

Your needs and circumstances play a significant role in choosing between a group and individual disability insurance policy. Group coverage can provide valuable financial protection at a low cost. It’s almost always a good option if your organization offers it. 

It’s important to remember that group policies offer a basic level of protection designed to cover a broad range of employees, and the terms and conditions may not match your specific needs.

If you’re a practice owner or want more personalized coverage, an individual disability insurance policy is a wise choice. It allows you to customize coverage to fit your unique situation, such as buying an own-occupation policy for specialty-specific coverage. You can also increase coverage down the road without a medical examination if your income rises, which is a great opportunity for residents and fellows.

Related: How to Decide if You Should Get Disability Insurance as a Resident

Why combined coverage is usually the best choice

While group and individual disability insurance both offer benefits, you don’t have to choose one or the other  — you can have two disability insurance plans. Employer-provided group disability coverage is a great foundation. Buying an individual long-term disability insurance policy adds the necessary customization to ensure your needs are met, giving you the best of both worlds.

If you’re ready to take the next step in protecting your income, fill out the form below to get a quote from SLP Insurance. We’ll evaluate your disability insurance options and match you with the best discounts to make coverage more affordable.