Most employees are not aware that their group insurance plans may not provide them with adequate long-term disability benefits.

LTD benefits under a typical group plan may have ceilings, may not be based on total income or may be subject to qualifying periods — leaving employees at risk of shortfalls in income if they become disabled. A solution is to have an individual disability plan or “group offset” that supplements the group plan coverage to meet the planholder’s projected disability income.

“The truth is most people, including some insurance professionals, are not aware that group offset plans exist,” says Tim Landry, director of living benefits at MSA Financial Services in Montreal. “That’s why there is not much demand.”

Group offset acts as a supplement to eligible group LTD coverage. “It allows employees to purchase individual disability insurance above group coverage while they are covered by a group plan,” says Lawrence Geller, president, L.I. Geller Insurance Agencies Ltd. of Campbellville, Ont.

Although employees who are covered by group insurance may not be thinking of LTD, advisors should at least make them aware of the benefits of group offset. The truth is that the chances of becoming disabled are quite high.

The Canadian Life and Health Insurance Association says a 20-year-old man is about three times more likely to be disabled for at least 90 days than he is to die before age 65. On the other hand, a 35-year-old woman is about seven times more likely to face disability than death before age 65.
Furthermore, if disability lasts for at least 90 days, it is likely to last, on average, three years or more for a 35-year-old man or woman, and four years or more for a 45-year-old man or woman.

There are four main reasons for purchasing group offset:

> The amount of benefits provided by a group plan may be insufficient because of pre-determined ceilings in the plan; for example, a certain percentage of income or a maximum payout.

> Certain types of earned income such as bonuses, incentives and profit-sharing may not qualify when determining LTD benefits, because plans generally use base salary for such calculations.

> A group plan may have, say, a two-year “regular occupation” period, which means that, after two years, the client must be unable to do any reasonable job — not just his or her own job — to qualify for benefits.

> The individual disability plan can be retained subject to certain conditions even when the benefits of a group plan are no longer available.

Geller adds that employees have no control over changes to a group plan, such as altered definitions, payments or costs.
“Group plans are renewed every year.
Premiums may go up, and definitions and payouts may change,” he says.

And what if an individual can do a reasonable job based on the definition in a group policy? In such a case, a group plan may not consider the policyholder totally disabled. “Many insured individuals worry that their group plans will cease paying at that point, which is a valid fear,” says Landry.
“Group plans generally do not cover ‘partial’ disabilities; for example, the recovery period after a heart attack, or early stages of cancer or multiple sclerosis, or any progressive disability.”

Group offset can provide coverage that coincides with the expiry of the regular occupation period or a selected range of elimination periods. “We are no longer a country of loggers and miners, of people who work in physically demanding jobs,” says Landry. “Of course, these jobs do exist, but many of today’s jobs involve knowledge and communication skills. These types of jobs do not easily lend themselves to total disabilities.”

If a group plan does not cover partial disability or ceases to pay benefits after the regular occupation period, then an individual can be at serious financial risk, which makes group offset worth considering.

Here is an example from the Manulife
Financial Corp. brochure entitled, “When LTD isn’t enough.” Tom wants to buy $4,000 of individual disability insurance to make sure his living expenses, mortgage and children’s education of $6,100 are covered.
He qualifies for a non-taxable benefit of $5,100 a month (based on his current salary). His group LTD coverage is $2,100 a month, so he buys $4,000 of individual DI of which $3,000 is the top-up amount to meet the eligible amount ($3,000 + $2,100 = $5,100) and $1,000 is the offset amount.
The monthly cost of the individual coverage in the example starts at $75.