Do You Have Enough Disability Insurance?


If you were to come down with an extended illness, or an accident sidelined you from your job for a while, how would you make ends meet? Group disability insurance can help you to an extent, but you may not have it.

“Less than half of consumers are covered by group disability policies at work, either because it’s not available, or because it’s optional and they choose not to purchase it,” says Steven Weisbart, senior vice president of the Insurance Information Institute in New York.

Furthermore, private insurance is expensive, so many workers count on Social Security disability benefits, which are difficult to qualify for and aren’t even that large to begin with.

Don’t rely solely on group coverage

While group disability insurance offered through an employer is nice, it is not meant as a long-term solution.While group disability insurance offered through an employer is nice, it is not meant as a long-term solution.

“Disability insurance is meant to keep you from financial disaster but not to provide enough income to encourage you to stop working,” Weisbart says.

Group policies typically cap benefits at 40 to 60 percent of your salary, not including income from bonuses, commissions and other compensation; therefore, coverage is usually much less beneficial than you may have expected it to be. Group coverage is also generally reduced by the amount of Social Security benefits you receive, should you qualify.

Another downfall of some group coverage is the time and dollar-amount limits for benefit collection. For example, many policies are capped at 60 months, according to Bankrate.com, so if your severe illness or injury makes you unavailable for work for more than five years, you will run out of benefits (which were only partial anyway). Moreover, most group policies place a cap on your annual benefit, such as $10,000, which is not very helpful if your lifestyle is based on a $100,000 yearly salary.

Finally, group policies have strict requirements for approving the benefit payout. Be sure to become educated about the conditions, however, as there may be terms that pay partial benefits in some cases, according to Michele Lerner on Bankrate.com.

Don’t go crazy with private insurance either

Keeping such restrictions in mind, Lerner’s Bankrate article provides the recommendation that you get as much private insurance as you can afford; but don’t be too hasty, as you may end up paying for overlapping coverage.

“Get a copy of your group disability insurance policy’s summary plan description and show it to an insurance agent to find out how much supplemental coverage you can buy,” says Brenton Ver Ploeg, a partner at a Miami insurance law firm.

Prices for private disability premiums vary greatly — based on the individual’s current health, income and age — but the average is just over $2,000 per year. On the other hand, the average benefit is nearly $2,500 per month, so it’s worth the money if you actually end up needing to use your coverage.

If you were to come down with an extended illness, or an accident sidelined you from your job for a while, how would you make ends meet? A big difference between group and private coverage, notes Ver Ploeg, is that group coverage is meant to replace income lost by your disability, while “private disability insurance can provide a payout if what’s lost is merely your ability to work in your specific occupation.”

Another difference between the two is the taxability of group benefits; private benefits are not taxable, which could be a multi-thousand-dollar distinction.

Regardless of the type in which you opt to enroll, or in what combination, the main concern is that you don’t neglect disability insurance. It is just as important, if not more so, as life insurance, and it can make a world of difference for you and your family should the unexpected occur.

 

 

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