Why Your Work Disability Insurance May Not Be Enough
When you signed up for employee benefits, you may have missed the section on disability insurance. If you are healthy, it is difficult to imagine that someday you will not be able to work – even for a short time. But disability can happen and your workplace insurance coverage may not be enough.
Most group long-term disability insurance plans cover only 60% of income, according to the 2019 Bureau of Labor Statistics survey of employee compensation. Worse, most companies only pay the cost of the premiums, so workers will have to pay taxes on their payments .
According to the Social Security Administration, one in four 20-year-old men will become disabled before reaching retirement age . While many rely solely on Social Security disability payments, the average payment is $ 1,234 a month. In addition, these benefits can be difficult to qualify for (more on this later).
Short and long term disability insurance
Your company may offer one or two types of disability insurance: short-term and long-term.
According to the Insurance Information Institute, you can wait up to two weeks (called the exclusion period) to start receiving short-term disability benefits, and benefits can last up to two years. If your company only offers short-term disability insurance, you may be in danger if you become permanently disabled.
The waiting period for long-term disability can range from several weeks to several months. However, it may be possible to shorten the exclusion period by paying an additional fee. You can get long-term disability benefits for several years until the end of your life.
Disability Insurance Drivers
Many disability insurance policies allow you to customize your insurance coverage with the help of passengers. These riders, which may incur additional fees, are some of the most common, according to the Disability Board :
Residual disability allowance
If you are partially disabled, the payment of residual disability benefits allows you to return to work part-time while receiving a portion of your benefits. The allowance is proportional to how much income you lost, so if you only earn 40% of your previous salary, that is how much you will get.
Cost of Living Adjustment (COLA)
To keep pace with inflation, your disability insurance premiums must increase over time. Every year your payments increase with the help of a device that regulates the cost of living, which is especially important in case of long-term disability.
Future Increase Option (FIO)
You can expect to make more money throughout your career. The Future Upgrade Rider will allow you to increase your coverage in the future without having your coverage confirmed on a follow-up check-up.
Automatic Benefit Enhancement (ABE)
You can also increase your income with an automatic increase in benefits rider. This rider matches your expected increase in annual income over five or six years.
Defining your own profession
One of the most important parts of your policy is the definition of disability . The best definition is “owning a profession” that encompasses you if you are unable to work in your current profession. The least generous definition, “any occupation,” only pays you if you cannot work in any job. Social security defines disability as “any profession”, which can make it difficult to qualify for it.
No cancellation or guaranteed renewal
Disability insurance policies also offer several protection features. A non-cancellable policy protects you from canceling your policy if you don’t stop paying premiums. You can renew every year without paying more. The Renewable Energy Guarantee entitles you to renew your policy with the same benefits, but your insurance company may increase premiums.
Working with an independent insurance broker
If you need more disability insurance, you can work with an independent insurance broker. An experienced independent broker (not someone who works for the same company) can review your current policies and suggest which companies can fill in the gaps.