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Disability Insurance > Articles > Types of Coverage > Supplemental Disability Insurance

Supplemental Disability Insurance

Why Do You Need It?


Group LTD is a great tool for employers to have in their employee benefits package. This insurance will provide a valuable benefit for company employees. It will also attract new employees as well as help retain existing employees.

Group LTD typically offer employees a 60% salary continuation in the event of a long term disability. It usually has a 3 or 6 month waiting period and a typical benefit period to age 65. This benefit is usually free, or associated with a very small cost to the employee. It is common for employers to pay the premiums for group long term disability.

Group LTD is a valuable benefit to have but there are a few questions that need to be considered…
• Are group LTD benefits taxed?
• Are commissions and bonuses covered?
• Are employers able to cancel their DI benefits?
• What is the definition of total disability?
• Is coverage transportable to other employers? -If not, will you be able to medically qualify and afford individual DI later?

Group LTD benefits are taxed just like regular income if the employer pays the premiums. The 60% income replacement actually is much less as a result of taxes. This may be alarming to most. Few individuals can maintain their way of life and their financial goals if they have to live off less than 60% of their current income.

Group LTD may not cover you for the income that you earn from commissions or bonuses. If a significant portion of your income comes from commissions or bonuses, be sure to note that it may not be covered under group LTD.


umbrella covering moneyCompanies can cancel their group LTD program, usually to cut costs. Group LTD is typically non-convertible to an individual policy. You may lose your group LTD coverage if you switch to another employer that does not offer this type of benefit. You will then have to purchase an individual disability insurance policy on your own.

However, you must consider whether you can medically qualify or afford the coverage at a later time. DI coverage may become a greater financial obstacle at a later time. As age increases, prices will also increase to keep up with the increased risk of disability.

A Group LTD policy typically contains an “own-occupation” definition of disability while on claim for an initial period (often two years). If you remain disabled, benefits will then only continue if you are unable to work in any occupation which you are suited by education, training or experience. This definition may limit the number of disability scenarios for which benefits are payable by the group carrier, and may certainly limit the length of time for which those benefits will be payable.

Supplemental disability insurance would help close the gap in coverage presented by group LTD. An individually-owned policy will allow more income coverage due to the tax-free nature of benefits (assuming premiums are paid for by the individual on an after-tax basis).

Income earned from commissions and bonus may also be covered. Supplemental DI is individually owned and cannot be canceled by the insurance company except for non-payment of premiums. It can be canceled via written request by the insured or through non-payment of premium.

True own-occupation disability insurance is available for those working in qualified occupations. With a true own-occupation policy, you will be issued a monthly benefit if you cannot work in your own occupation due to a sickness or injury. Benefits will continue even if you choose to earn an income in another occupation. This will allow you to do something meaningful with your life and earn an income instead of sitting at home waiting for the next month’s check to come in.


Jack Le, CLU® holds a Financial Representative contract with The Guardian Life Insurance Company of America based out of New York, NY.

Berkshire Life Insurance Company of America, Pittsfield, MA, underwrites and issues the disability insurance policy forms 1400, 1500, 1600, 18ID. Berkshire is a wholly owned stock subsidiary of The Guardian Life Insurance Company of America which is located in New York, NY. Policy forms 1400, 1500, 1600, 18ID provide disability income insurance only. They do not offer major medical insurance, basic medical or basic hospital insurance as set forth by the New York State Insurance Dept. These policy forms have an expected benefit ratio of 50%. In New York only, policy forms 1400-F, 1500-F or 1600-F have an expected benefit ratio of 60%. Expected benefit ratio is the amount of future premiums the company predicts will be returned as benefits to the consumer when averaged over all the people who own this policy form. The availability of this policy series, optional riders and provisions, as well as features, may vary from state to state.


2017-36341 Exp 2/2019