Tag Archives: group policies

Are Benefits Taxable?

 

The Answer Is: It Depends

Whether your disability benefit payments are taxable depends on what type of policy or plan you have and how your premiums are paid.  This post is not intended as tax advice—we’ve outlined some basic information below only.  You should always speak with a tax professional regarding your particular situation.

Individual Policies:  These are policies that you purchase yourself.  Generally speaking, if you pay the premiums with after-tax dollars, the benefits you receive are tax free.  However, if you pay with pre-tax dollars or deduct your premiums as a business expense, then your benefits will likely be subject to federal income taxation.

Group Policies: Group policies are those offered through associations such as the ADA or AMA.   These types of policies offer special terms, conditions, and rates to members and function much like individual policies, with similar tax consequences.  Generally speaking, if you pay the premiums (with after-tax dollars) then the benefits you receive are tax free.

Employer-Sponsored Policies: These types of policies can be less straightforward when it comes to taxes, as the payment of premiums can be structured several ways.  According to the IRS website:

  • If your employer pays the premium and does not include the cost of the premiums in your gross income, then benefits you receive will generally be fully taxable.
  • If the employer only offers a policy, but you pay the entire premium without taking a tax deduction, then the benefits you receive will generally be tax-free.
  • If both your employer and you pay the premiums then the tax liability will generally be split.

If you are unsure what type of policy or plan you have, and you think your employer might be paying the premiums, you can look at your application (there is typically a portion that states who is responsible for the premiums) or talk to your HR department.  For more information, talk to your accountant.  You can also go to to the IRS website on disability insurance proceeds to find additional information.

It may be tempting to save money by enrolling only in a plan solely paid for by your employer, paying premiums with pre-tax dollars, or deducting premiums as business expenses.  But keep in mind that, if you do become disabled, the amount of your benefits actually available to you will substantially decrease if you are required to pay income tax on them.

Selecting a policy is an important decision, and how benefits will be taxed is a significant factor to consider. With statistics showing that one in four dentists will be disabled long enough to collect benefits at some point in their careers, choosing to save now could hurt you financially down the road.

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Disability Insurer Profiles: Great-West

Great-West Life & Annuity Insurance Company (“Great-West”) is the final disability insurance provider we will look at in our series profiling insurance companies that specifically market to physicians and dentists.

See our profiles of MassMutualMetLifeNorthwestern MutualGuardian, Hartford, and Standard.

Great-West, which also goes by the registered mark of “Great-West Financial,” was incorporated in 1907, and traces its roots to a Canadian parent company that was incorporated in 1891.  Due to the nature of the economy and other factors, many insurance companies have suffered substantial losses in the past few years, and Great-West is no exception.  Great-West’s net income recently dropped from 238.1 million in 2012 to 128.7 million in 2013.  Consequently, Great-West may be looking to substantially increase its profits by, for example, denying high paying disability claims.

Company:  Great-West Life & Annuity Insurance Company.

Location:  Greenwood Village, Colorado.

Associated Entities:  Great-West Lifeco Inc.; Great-West Lifeco U.S. Inc.; Great-West Life Assurance Company; Great-West Life & Annuity Insurance Company of New York; Great-West Capital Management, LLC; Great-West Funds, Inc.; GWFS Equities, Inc.

Assets:  $55.3 billion in 2013.

Notable Policy Features:  Great-West is the insurance company that provides group disability insurance for the American Dental Association (ADA), so if you have a Great-West policy, your claim will probably be governed by the terms of the ADA’s group disability policy.

Great-West frequently sends out notices of updates and changes to the underlying contract between the ADA and Great-West, so there is a chance that you may end up with insurance coverage that you did not bargain for at the point of sale.  Oftentimes these notices are full of legalese and insurance jargon, and may be difficult to understand.  Nevertheless, it is important for you to promptly review any notices you receive, because they may impact your disability coverage in significant ways.  If you receive such a notice and are unsure about what it means, an experienced attorney can explain how the changes outlined in the notice will impact your policy.

Additionally, if you have a Great-West policy, you should be aware that your policy may contain a very strict provision requiring you to obtain proper medical care for your condition.  For this reason, if you are thinking about filing a disability claim with Great-West, you should make sure that your medical treatment is both well-documented and “appropriate” under the policy’s terms.

Claims Management Approach:  How Great-West administers your claim will depend on the terms of the policy at the time you file your claim.  Because the terms of the ADA’s group disability policy are renegotiated on a regular basis, the terms of your policy will likely change over time.  Since your initial copy of the policy may no longer be accurate by the time you file your disability claim with Great-West, be sure to ask for a copy of the current version of your policy so that you know your rights under your policy.

These profiles are based on our opinions and experience. Additional source(s): Great-West Financial’s 2013 Annual Report; www.greatwest.com.

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Disability Insurer Profiles: Hartford

Hartford is the next disability insurer we will look at that specifically markets its policies to physicians and dentists.

See our profiles of MassMutualMetLifeNorthwestern Mutual, and Guardian.

The Hartford Financial Services Group, Inc. (“Hartford”) was founded over 200 year ago and now has more than 100 offices located throughout the U.S.  In 2013, Hartford’s revenues were approximately $26.2 billion.  However, in 2014, Hartford’s revenues dropped to $18.6 billion.  Given this significant decrease in revenue, Hartford will likely go to great lengths to avoid paying high paying claims submitted by physicians and dentists, and may even attempt to revoke disability benefits that it approved before the company experienced this dramatic drop in profits.

Company: The Hartford Financial Services Group, Inc.

Location: Hartford, Connecticut.

Associated Entities:  Hartford Fire Insurance Company; Hartford Life, Inc.; Hartford Accident and Indemnity Company; Hartford Casualty Insurance Company; Hartford Life and Accident Insurance Company; Hartford Life and Annuity Insurance Company; Hartford Life Insurance Company; Property and Casualty Insurance Company of Hartford.

Assets: $245 billion in 2014.

Notable Policy Features:  Hartford offers policies that define total disability as being unable to perform one of your prior substantial and material duties.  If your policy contains such a definition, it will be much easier for you to demonstrate that you are totally disabled.  In contrast, if your policy does not define total disability in this manner, you may have to prove that you cannot perform any of your prior substantial and material duties in order to receive total disability benefits.

Claims Management Approach:  Hartford only offers group disability policies (as opposed to individual disability policies).  This means that if you have a Hartford policy, it will probably be governed by ERISA.  For many reasons, it will likely be harder for you to obtain your disability benefits if your policy is governed by ERISA.

For example, normally, if you become disabled and you have an individual disability policy, you can collect your disability benefits without filing for Social Security.  However, if you have a Hartford group policy, your policy may require you to apply for Social Security benefits before you can receive your disability benefits.  Hartford requires its policyholders to apply for Social Security because, under ERISA, any Social Security benefits the policyholder receives automatically offset the amount of disability benefits Hartford must pay the policyholder.

Read more about how ERISA claims are treated differently than non-ERISA claims.

These profiles are based on our opinions and experience. Additional source(s): Hartford’s 2014 Annual Report; “The Hartford Fact Sheet (2013),” and “The Hartford Fact Sheet (2014),” available at www.thehartford.com.

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