Group versus individual disability insurance is one of the topics we wish we had more time to fully cover in our lectures. There is no doubt that this subject yields a great deal of confusion and misunderstanding. The reason is because a general misconception prevails that group disability functions in the same manner as an individual policy. We have had countless numbers of clients share with us that they had no idea what their group disability benefits were or how they worked. It is so important for physicians in general, but especially residents and fellows to learn the difference before they graduate. The misconception that group disability insurance performs in the same manner as an individual policy leads to a false sense of security. Here we explain what that is.

We came upon this comparison chart during a conference prepared and presented by Michael Quiat, a prominent disability attorney, who will later in this segment share his own experience. His chart displays how limited a group disability policy is when compared to an individual plan. Simply put, group insurance does not offer true own occupation coverage. It will never allow you to collect total monthly benefits from your policy while simultaneously earning a full salary in another occupation. Regardless of the definition, group insurance benefits will be reduced by other sources of income. Some of these sources include salary, social security, and worker’s compensation. Only your individual, true own occupation policy will allow you to collect total monthly benefits and still receive a full separate salary in another occupation. There are no benefit offsets. You may also simultaneously receive social security and worker’s compensation. For physicians, a group policy can present even more challenges with respect to other policy features.

For example, group insurance is not portable, meaning you cannot take the policy with you if you change employers. We have witnessed many physician clients often change employers throughout their career. Once your employment terminates, your group contract terminates, leaving you severely exposed. This is contrary to an individual policy, which is fully portable. Taxation of benefits, group insurance policies are most often employer paid, which means that the benefits are taxed on the federal and state level. Your individual policy is tax free because you purchase it with post-tax dollars. Non-cancelable, with a group policy regardless of the benefits, there is no guarantee that it will continue to be the same year after year. You are not the policyholder, your employer is, and can change the coverage at renewal. The individual plan has all these guarantees with the non-cancelable and guaranteed renewable feature, meaning that once you have your policy, both costs and benefits are guaranteed never to change.

Now let us move onto the difference in claims and how they’re processed. This area of claims adjudication is the least understood and most confusing element of a group disability policy. It is a must that you understand how an insurance company will pay your claim. In terms of how your claim is treated under a group policy, there is a law called a ERISA, which stands for Employee Retirement Income Security Act of 1974. With a group policy, ERISA claims adjudication procedures apply. The difference in these claim procedures when compared against an individual policy is astonishing and very few people are aware of it. If your claim should be denied, and you felt you were wrongfully treated, the following applies under ERISA. There is no jury trial, no discovery, and no punitive damages. Your claim is presented to an arbitrator who singularly makes a decision. An individual policy gives you all the rights as an individual to hear your claim in court by a jury of your peers before a judge. It also gives you the right to receive punitive damages should the jury decide the insurance company wrongfully denied your claim. The bottom line is that you have all the legal rights and remedies afforded you with an individual policy, while the opposite is true with a group policy. We therefore encourage you not to rely on group disability protection to be the foundation of securing your income when you can do so with an individual, true own occupation policy.

You have to understand that there is a significant substantive difference between the coverage that you’re buying at a group level and what you would get if you bought an individual disability policy. And we can talk about the differences, but the first difference is that if it’s not covered by ERISA, all of your legal rights are secured by the state in which you reside. Under federal law under the ERISA statute, it is a very different paradigm, and it is not shall we say user friendly, it tends to be adversarial because the legal dynamics of an ERISA dispute favor the insurance industry in a very significant way. You know, the individual policies tend to be more expensive, but then you tend to get a greater level of protection, and since the point of getting the insurance is to protect against risk to the extent that the policies that you’re buying more effectively do that than a group policy, well then that’s the nature of buying insurance. You know, if you want to get the best protection you can get, and you want to make sure you understand what it is that you’re getting, which of course most people don’t. I’ve been doing this a long time. I’ve handled these claims against pretty much every carrier out there on both group and individual bases, clearly the individual policies are superior for a host of reasons, but you know, that’s my take on it.