What is Group Disability Insurance?
When an employee is unable to work due to an injury or illness, disability insurance is what covers part of their salary during the work time they miss. Group disability insurance refers to a policy that covers many people with a common interest or association, such as a trade, employer or school affiliation. Often, group coverage is less expensive than individual coverage because it’s more cost-effective to provide disability insurance for one group than for several individuals.
When an employee applies for group disability insurance, they aren’t issued an individual policy, nor are they evaluated for coverage as an individual. The policy is instead issued to a master policyholder, usually the company for which the group works. Premiums are paid directly to the master policyholder. Instead of being issued individual policies, members of the group are issued certificates of coverage, which prove that coverage exists and allows employees to collect benefits if they become disabled.
Group disability insurance policies can be either short or long term. Short term policies typically provide up to one year of coverage. Long term policies are for disabilities lasting longer than one year.
Group disability insurance plans are defined as either contributory or noncontributory. Contributory plans involve the employee signing up for coverage and contributing either part or all of the premium payments. Noncontributory plans are funded entirely by the employer, and employees are automatically covered as long as they’re eligible.
Who’s Eligible for Group Disability Insurance?
To be eligible for group disability insurance coverage, an employee must:
- Be affiliated with the group offering coverage (typically their employer)
- Meet the eligibility requirements (such as length of employment) defined by the master policyholder
- Fill out and sign the paperwork that articulates the insurance contract
What Does a Group Plan Cover?
The typical group plan covers about 60 percent of an employee’s income. However, this amount is offset by other benefits such as social security or workers’ compensation insurance. Also, many group plans have a benefit cap of $5,000 a month, or $60,000 a year. Usually, company bonuses are not included in the amount covered by insurance. The typical group plan only insures regular salaries. According to America’s Health Insurance Plans, an industry lobbyist, about half of mid- to large-sized companies offer benefits that last approximately five years.