Income & Disability
Your Employer's Disability Coverage Probably Isn't What You Think
Group disability insurance is a starting point. For most professionals, it is not a finish line.
The comfort of the checkbox
When you enrolled in benefits, you probably checked a box next to 'long-term disability' and moved on. That's understandable. The existence of coverage feels like the problem is solved. But group disability insurance — the kind provided through an employer — is designed to meet a minimum standard, not to protect what you've actually built.
Benefit caps: the number that matters
Most group LTD policies replace 60% of your base salary, up to a monthly maximum — often $5,000 to $10,000 per month. For someone earning $120,000 a year, 60% sounds adequate. But if the policy caps at $6,000 per month, the effective replacement rate drops well below 60% once income exceeds $120,000. For physicians, attorneys, executives, and other high earners, the gap between what the policy pays and what they actually need can be substantial.
The tax problem most people miss
If your employer pays the disability premium — which is the most common arrangement — the benefit you receive is taxable income. That 60% replacement rate shrinks further once federal and state taxes are applied. In California, a $6,000 monthly benefit can net out to $4,000 or less after taxes. That is a meaningful difference when you are trying to maintain a mortgage, fund retirement savings, and cover ordinary living expenses.
"Any occupation" versus "own occupation"
This is the definition that determines whether you actually collect a benefit. An 'any occupation' policy pays only if you cannot perform any job for which you are reasonably suited by education and experience. An 'own occupation' policy pays if you cannot perform the specific duties of your current profession. A surgeon who loses fine motor control may be able to work as a medical consultant — under an any-occupation policy, that may disqualify the claim. Under an own-occupation policy, it would not. Most group plans use any-occupation definitions, or switch to any-occupation after two years.
What adequate coverage actually looks like
A well-designed disability income strategy typically layers individual coverage on top of group coverage — using a policy with a true own-occupation definition, a benefit amount that accounts for the tax treatment of the group plan, and a benefit period that extends to age 65 or longer. The goal is to replace enough income that a disability does not derail the financial plan.
The question worth asking now
Pull out your benefits summary and find the disability section. Look for the monthly maximum, the definition of disability, and who pays the premium. Those three data points will tell you most of what you need to know about whether your coverage is adequate — or whether it is a gap waiting to be discovered at the worst possible time.
Group disability coverage is a benefit. It is rarely a complete solution. Understanding the difference is the first step toward fixing it.
If you have not reviewed your disability coverage recently, that is worth putting on the list.
Explore further
Disability Insurance
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Your Income May Be Your Most Valuable Asset
Why future earning power is often the largest financial asset a working person has.
High Earners Have a Different Disability Problem
Why benefit caps leave doctors, attorneys, and executives most exposed.