There’s an old saying that there are two types of people in the world: those with disability insurance and those without it.
Okay, that’s not an actual saying, but it’s true. Disability insurance is a great way to protect your income – and your financial plan – in the case of not being able to work due to injury or illness. A lot of people get some sort of group disability coverage through their employer. But is that enough?
Employer-sponsored life insurance usually isn’t enough protection for most people, and the same goes for disability insurance. That’s why we’re going to throw a third group of people into that age-old adage we just made up – people who have group insurance but need a private supplemental disability insurance policy.
Here are three questions you should ask yourself if you’re debating purchasing supplemental disability insurance.
1. Do I need more coverage?
As mentioned above, this is a common question for most people – they just simply don’t have enough coverage through their work’s group plan.
Many group plans only cover 60% (or less) of your income. Plus, since your employer is paying for it, it’s taxable. That means that when all is said and done, your actual take home pay could be closer to 40% of your income than 60%. Plans might also have maximum benefit amounts, which means that, especially for high-income earners, the income received for your family isn’t nearly what you’re used to each month.
Are you able to cut your expenses by half to make that workable?
If you add a supplemental disability insurance plan to your group plan, you can get a discounted rate that can bring your coverage up to 80%. That’s much more manageable – by scaling back expenses and/or pairing it with an emergency fund, there’s less of an impact on your lifestyle.
2. What’s the strength of my group plan?
Most group plans aren’t as robust as a private disability insurance policy. Most employer-provided disability insurance plans are own occupation policies for the first two years of disability before switching over to any occupation policies for the remainder of the benefit period; some may never be own occupation. If you have a residual disability and can’t perform your job to the same capacity as you could before – you’re still earning money, but less of it – your employer’s group policy might not cover that at all.
Compare that to a private disability insurance policy, where you can get own occupation covered for as long of a benefit period as you want – two, five, or 10 years, or even go all the way to retirement age. Considering one in eight workers will be disabled for five or more years over the course of their career, having that flexibility in terms of length of coverage is crucial.
Your work coverage might also be insufficient if you qualify for Social Security disability insurance (SSDI). The group coverage could be offset by your SSDI coverage, meaning you won’t get as much as you were expecting through work. The good news? A private policy won’t be affected.
Buying a supplemental disability policy ensures that you have the most comprehensive coverage possible. If you’re relying solely on the group coverage you get through work, you don’t have control of the type of policy it is – which means you could leave yourself vulnerable to loopholes.
3. What’s my plan for the future?
If you have health insurance through your employer, you know that if you ever lose (or leave) that job, you lose your health insurance, too. Well, your group disability insurance works the same way. This goes back to the last point of not having control of your policy: if you leave, or if your employer just decides to cancel the coverage, there’s not much you can do about it. You’re at the whim of your employer.
If you don’t have supplemental insurance and you leave your current employer, whether to take a new job or start your own company, you’re starting at square one in terms of coverage. And if you’re later in your career, you might hit a roadblock if you decide that now’s the time to get your own coverage.
Just like with life insurance, disability insurance requires applicants to go through an underwriting process. If you’re in poor health or have pre-existing medical conditions, it could prove difficult to find affordable disability insurance coverage. That’s why – as with life insurance – the earlier you buy, the better your chances are of getting the protection you need at a price you can afford.
How to get supplemental disability insurance
So you’re ready to get supplemental disability coverage, right? Great! The best part is that it’s not any more difficult than if you were applying for a long-term disability insurance policy without group coverage already in place.
Buying a supplemental disability policy is usually less expensive than buying a single standalone policy, because you’re usually buying a smaller amount to work with your group coverage. Including a future purchase rider will allow you to increase your coverage in the future, with no further underwriting, if you leave your company, lose your group disability coverage, and need more protection.
The only real difference in applying for supplemental insurance is disclosing that you already have group coverage in place. You’ll be asked this on the application, so you’re sure to see it during the process. When disclosing your group policy, you’ll need to disclose the coverage amount, the benefit period, and the elimination period (how long after your disability before you’re eligible for benefits). The amount you can apply for depends on how much coverage you have through work, whether it’s employee- or employer-paid, so it’s important to be truthful so you don’t wind up being overinsured.
Having group disability insurance is a great perk from your employer, but it’s not enough to stop there. To ensure that your family has the protection they deserve, you may need to beef up your coverage with a private supplemental policy. After seeing all of the potential gaps in coverage – whether it’s the amount of income replacement you’ll get, the length of time you’ll be protected, or the flexibility you have with your policy – you owe it to yourself to at least review your group policy and see how you can better fill your financial safety net.