Many people like to avoid the thought of what if. After all, it is easier to assume that nothing bad will ever happen. However, when disability does strike, it can abstract the ability to work and earn a living.
Absent income creates an enormous financial burden, especially for those that do not have any financial safeguards in place. Despite what many may believe, disability from injury or illness is not an uncommon event. According to the U.S. Department of Housing and Urban Development, over 45% of all home foreclosures are due to the person suffering a disability. The American Council of Life Insurers has estimated that one in every seven workers will suffer a disability that has an effect on the worker for over five years.
What You Should Be Doing
Disability insurance is offered by around half of large to mid-sized employers. Despite availability, many are not taking advantage of disability insurance or do not have adequate coverage to safeguard against financial ruin. The prudent action is to fully understand what is available to you through an employer-sponsored policy, and then assess if that policy equates to adequate protection for your specific situation.
What You Need to Know About Group Policies
Typically, 60% of your salary is replaced with an employer-sponsored group disability insurance plan. Of course, this varies by employer.
One deterrence of the employer-sponsored group disability insurance plan is that it isn’t tax-free. An employee might not be able to part with the portion of their income that will pay taxes on the benefit. The only way that disability benefits are tax-free is if you purchase the policy on your own.
Another significant downside is that you will usually not be able to keep the employer-based group plan in the event that you change your employer.
Some policies will pay benefits if you can not perform the job duties specific to your own occupation, while others will only pay benefits in the event that you become unable to perform any job or occupational duties. This is an important distinction if you do not want to face being forced to take a lesser job that you are capable of, despite whether the pay is less or not.
There is also a benefit cap attached to many group policies. This cap will essentially determine the maximum amount paid to you per month/year. Be sure to inquire if there is a cap and what the amount is.
Take note if bonuses are calculated as part of the covered salary under the group disability insurance plan; they most often aren’t.
Determine how long the policy will pay – indefinitely, set number of years, until you reach the age of retirement?
It is vital to evaluate all elements of your disability coverage closely and recognize any area where you need to adjust your coverage with supplemental insurance.
Supplementing Your Group Policy
If you discover that your group policy does not sufficiently cover your specific need, then it might be in your best interest to consider supplemental insurance. Supplemental insurance will generally extend your existing coverage to include an additional 10% to 20% of your income. If you need higher benefit limits, these are usually accommodated with an individual plan.
Some policies will make you re-qualify or include stipulations for renewal. Look for a policy that is guaranteed renewable.
You will also want to ensure that you are not paying for the same long-term disability benefits twice by carefully examining each policy for any overlapping coverage.
Finding a disability insurance policy will not be a problem. However, exercise good judgment when picking one. Cheap may sound appealing, but you generally get what you pay for.