With a group disability income policy, what is true for employees paying for additional residual disability coverage?

When employees pay for additional residual disability coverage under a group disability income policy, the benefits they receive are generally tax-free. This tax treatment is a significant advantage for those who purchase this type of coverage, as it allows individuals to receive income when they are partially disabled without the burden of taxation that could reduce their financial support during recovery.

The reasoning behind this tax exemption is rooted in IRS guidelines regarding individual contributions to insurance premiums. When employees pay the premiums for their own disability coverage, the benefits they later receive from that coverage are not considered taxable income. This makes the residual disability benefits more valuable to the insured, as they can rely on these funds without worrying about how much will be deducted for tax purposes.

Additionally, this tax provision encourages employees to seek out additional protection, knowing that in the event of partial disability, they will have access to funds that maintain their financial wellbeing without added tax liabilities.