Group Disability Income Myths

Does your advisor have this on their desk? If not, then you should be asking them why not!

The Group Myth

Many employees who have employer paid group disability income insurance believe they are safe. There is more to this story.

Most group plans usually pay a maximum of 66% of pre-disability earned income, although some will pay as much as 70%. Virtually all employers deduct the premiums they pay for group disability income insurance, which makes the benefits taxable as earned income to the employee when they are disabled.

This begs the question:

Can you handle a 30% pay-cut?

Which job do you want?	Job A	Job B
Income while healthy and working	99%	100%
Income while sick or hurt and cannot work (employer paid group disability)	66% Taxable	66% Taxable
After-tax income while sick or hurt and cannot work (assumes 25% tax rate)	50% After-tax	50% After-tax
Supplemental income while sick or hurt and cannot work (voluntary individual disability paid with after-tax dollars)	22% Tax-Free
Net-net bottom line	72% After-tax	50% After-tax

Remember, the chance of disability is one out of three before age 65, so the risk is significant.

If you cannot afford a 30% or more paycut, then we should talk about affordable solutions to this overlooked gap in income protection.


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