There are many differences between group and individual disability insurance coverage. It is almost always better to have an individual policy. For these reasons, you should purchase an individual policy over a group policy:
What’s the Difference Between Individual and Group Disability Insurance?
A major difference is that individual policies are underwritten with respect to the individual purchasing insurance coverage, while group policies are not individually underwritten. Instead, group policies are issued by disability insurance companies based on certain underwriting assumptions related to the general health of a group of people.
Individual policies are typically procured and paid for by the policyholder independently of their employer. Conversely, group insurance is commonly provided by an employer or union, with premiums usually paid, either fully or partially, by the employer. There may be situations where an employer procures and covers the premiums for a personal policy on behalf of an employee. Alternatively, an individual might independently secure group long-term disability (LTD) coverage by becoming a member of a group that offers such coverage to its members.
If you pay the insurance premiums on your own, the monthly benefits you receive are usually tax-free. But if your employer pays the premiums, you may be required to pay taxes on the benefits you receive.
Group Disability Lawsuits vs. Individual Disability Lawsuits
When insurance coverage is provided under a group policy by the insured’s employer, the policy is likely regulated by the Employee Retirement Income Security Act (ERISA). Policies regulated by ERISA supersede certain state laws designed to protect consumers. There are significant differences between a lawsuit connected to an ERISA LTD plan and an individual disability income policy.
For individual policy lawsuits, the plaintiff is entitled to a jury trial in state court. An ERISA claimant, however, does not have this entitlement. A federal judge determines the outcome of an ERISA disability lawsuit, usually after both parties have submitted written briefs supporting their arguments for summary judgment. One disadvantage of ERISA lawsuits is the challenge in obtaining an award for attorney fees for the victor in most federal circuits.
Furthermore, in a state court lawsuit concerning a wrongful denial of benefits under an individual disability insurance policy, the plaintiff might be eligible to pursue additional damages for the insurance company’s bad faith. ERISA regulations do not permit any bad faith or punitive damage claims for a wrongful denial of LTD benefits in a group plan ERISA claim. If the claimant wins in a federal ERISA lawsuit, the insurance company’s potential liabilities are limited to the payment of the claimant’s past-due benefits and, potentially, interest and attorney fees.
In essence, if the LTD plan is regulated by ERISA, the insurance company faces no risk of bad faith damages, providing no significant incentive to settle the claim. If your claim has been wrongfully denied or terminated, call Ortiz Law Firm at (888) 321-8131 to schedule a free case evaluation.