Are You Walking Around With a False Sense of Security That Could Potentially Ruin Your Financial Plans?

Do you fully understand your group benefits? In my more than thirty years as a financial planner, I have had numerous clients who did not realize potential shortcomings and risks in their company’s benefit plans. Far too many individuals think that their group benefits, such as disability insurance and life insurance are sufficient. Unfortunately, this is often not true.

Of course, it’s great that companies provide benefits such as insurance at no cost or low cost to their employees. However, it is imperative for each individual and their families that employees clearly understand how each benefit works as well as the pros and cons of each benefit plan.

One of the important considerations is that the insurance plan—life or disability—could change or go away. The insurance coverage can always be changed by the employer. If this happens, an employee might then find themselves seeking better or additional coverage on their own. Now insurability becomes an issue. Or the insurance coverage could go away altogether—either by the employer no longer offering it, or the employee is no longer employed at the company due to termination, layoff or retirement. Again, this could cause an insurability issue whereby the individual might not be insurable at all or might be rated and charged a higher amount for the coverage. We have seen several examples of this over the years and many times the individual had no idea there were underlying health concerns.

There are significant concerns with group long-term disability plans. Most provide approximately 60% income replacement. And since most group disability plans are provided at no cost to the employee, this means that the disability payment would be subject to income taxes. So now you’re down to around maybe 40%-50% of your normal earnings. This leads to another consideration—most group disability plans only cover salary and therefore do not include bonuses or commissions. A major limitation that most group long-term disability plans have makes it very likely that after 24 months, the disability payments would cease completely. And even if the payments do continue, most do not have a cost-of-living adjustment, so the payments to the individual would not keep up with inflation.

Many people assume that the group coverage is less expensive, but this is not always the case. Due to the competitive insurance marketplace, we often find individually-owned coverage at a lower cost. Personal/individual coverage can be designed to fit the individual’s needs, and it is portable, which means it goes with them wherever they go and coverage doesn’t end when they leave the company.

Our firm provides comprehensive financial planning, and one of the first things we help our clients evaluate is their insurance coverage. We of course deal with investments as well, but we first want to be sure there is adequate coverage in place because if not, investments could be quickly reduced or completely depleted.

Securities offered through LPL Financial, Member FINRA/SIPC. Investment advice offered through IHT Wealth Management a registered investment advisor and separate entity from LPL Financial.