Employer disability cover is usually described as replacing a share of salary, and the amount actually received is generally lower. Several provisions reduce it before payment.
The covered definition of salary is narrow
Group plans typically define covered earnings as base salary, excluding bonus, commission and other variable pay.
For anyone whose income is substantially variable, the stated replacement share applies to a fraction of what they actually earn.
Monthly caps apply as well, and those bind higher earners regardless of the percentage quoted in the benefit summary.
The headline figure describes the formula rather than the outcome.
Working out the covered figure from a recent payslip takes a few minutes and is the only way to see what the percentage applies to.
Other benefits are offset against it
Group policies deduct benefits received from social insurance programmes, from workers compensation and sometimes from retirement benefits.
The insurer pays the difference between those sources and the policy amount rather than paying on top of them.
Claimants are usually required to apply for the offsetting benefits, and estimated amounts may be deducted while an application is still pending.
Treatment of the benefit depends on who paid the premium
Where an employer pays the premium, the benefit is generally treated differently from one funded by an employee out of post-tax income.
The same nominal replacement percentage can therefore produce different net amounts under the two arrangements.
These rules vary by jurisdiction and change over time, and a qualified professional is the right source for any specific situation.
The relevant point for planning is that a quoted percentage is a gross figure rather than a net one.
Definitions and limits are tighter than individual cover
Group contracts commonly switch from own occupation to any occupation after an initial period, and many limit benefits for certain conditions to a stated number of years.
Those limitations apply to some of the most common causes of long-term claims.
Group cover is also underwritten on the workforce rather than the individual, which is what makes it cheap and what makes the terms uniform.
Individual policies can be written without them, at a price reflecting the wider cover being provided.
The cover ends with the employment
Group disability is tied to active employment, so it stops when the job does and rarely offers any portability.
Someone who becomes unable to work after leaving a role has no group cover left to claim under.
Individual cover bought while healthy is what survives a job change, because it is underwritten on health rather than on employment status.