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Group Supplement / Conversion
These are plans that can fill in some of the gaps inherent in group coverage. Many individuals believe that because they have group disability coverage through their employer, they are fully covered. In reality, they have been lulled into a false sense of security. Group plans—by their very nature of design—have built-in limitations.
First of all, if the employer is paying the premiums for the plan, the benefits are taxable to the employee. If the parameters of the group plan are to replace 60% of the insured's income, after taxes are paid, the true replacement ratio may be closer to 40%.
In addition, most group plans have imposed caps which further reduce the percentage of income covered. For example, a group plan that covers 60% of income, up to a cap of $5,000 or $10,000, may not truly cover the full percentage indicated. For the highly-compensated, this represents a gap in coverage and a need to supplement their group coverage with an individual plan.
Portability is another issue. If the insured changes jobs, their group coverage is usually not transferable. Perhaps the individual’s new employer does not offer a group disability plan or perhaps the individual will only become eligible after being employed for a specific time period. Maybe the individual started at the end of an enrollment period and will have to wait until the start of the next one. This can leave them without coverage just long enough for a disability to occur. It is also important to realize that group plans can be terminated by the employer or the carrier.
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