Part of our guide: Disability Income Insurance: Solutions, Tools and Guides →
Most employees with group disability coverage believe they’re protected. Few know how much their plan would actually pay, or that the benefit is probably taxable.
Key takeaways
- Typical group LTD covers 60% of base salary, but employer-paid benefits are taxable to the employee.
- After taxes, the benefit can be as little as about 42% of base income, a 58% pay cut.
- Individual disability insurance on top of group coverage can bring replacement back to around 80% of pre-disability income.
A 60% group benefit, taxed, can shrink to about 42% of base pay. That’s a 58% pay cut when the family needs income most.
The reality of group coverage
A typical group long-term disability plan replaces 60% of base salary. When the employer pays the premium, benefits are taxable, so the after-tax benefit can be as low as about 42% of regular pay. For highly compensated employees, it’s often less: many plans cap the monthly benefit, and many exclude bonuses, commissions, and incentive pay.
Filling the gap with individual coverage
An individual disability policy layered on top of group LTD can restore total replacement to roughly 80% of pre-disability earnings. Individual benefits bought with after-tax premiums are generally received tax-free. Some carriers offer supplemental coverage on a simplified basis, with no exam or tax returns, up to set limits, and discounts (for example, 20% or more with unisex rates) when three or more employees of the same employer buy.
Turning “I’m covered at work” into a conversation
When clients say they’re covered through work, ask to see what their plan would actually pay, whether it’s taxable, whether bonuses are covered, and whether there’s a cap. Group benefits can also be reduced by Social Security disability payments; see how group LTD offsets work. For high earners, see closing the income gap above $150,000.
Frequently asked questions
Are group disability benefits taxable?
If the employer pays the premium, benefits are generally taxable to the employee.
How much does group long-term disability pay?
Typically 60% of base salary, often with a monthly cap, and frequently excluding bonuses and commissions.
Can I buy individual disability insurance if I have group coverage?
Yes. Supplemental individual DI is designed to layer on top of group coverage, often up to about 80% total replacement.
Reviewed by Tim Fuller on 2026-09-25
Tim Fuller
President, SRS Inc.
Tim leads SRS Inc., a full-service IMO (Independent Marketing Organization) and BGA (Brokerage General Agency), connecting independent financial professionals with life, annuity, disability income, and long-term care solutions from 60+ carrier partners.
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