Not all employers provide benefits like disability insurance. And even if you are one of the fortunate few whose employer does offer this benefit, the coverage you receive through your employer benefits is often only enough to cover a small portion of your income. If you become too sick or hurt to work, and do not have supplemental disability coverage, your income will most likely be reduced by nearly half while you are receiving benefits.
But, it doesn’t have to be this way….
What is supplemental disability insurance?
Also known as gap coverage, supplemental disability insurance is essentially gap protection. The benefits from your coverage may not be as high as your actual take home pay from work, which would create a gap in income. If this is the case, supplemental disability insurance will help cover that gap so that you don’t have to take a cut in pay when collecting your disability benefits.
How important is this if I’ve already got disability coverage through my employer?
The benefit amount may be too small
Standard employer-provided coverage is usually around 60% of your salary. That might not sound so bad, but consider the fact that because this benefit is taken straight from your paycheck, it is taxable. Your benefit may be taxed by more than 25%, making your take-home pay well below what you are used to—and in some cases below half of what you are used to.
When you purchase your own disability insurance policy, the benefits are paid to you tax free, since they are purchased with after-tax income. You also have more control over setting the amount for your benefits to make sure you fully cover the gap.
Check your pay stub to see if you are paying for disability insurance through your work, or schedule a call with one of our Policy Wizards for free help reviewing your existing coverage.
How long does your employer’s benefit period last?
The length of time you can draw on your disability benefits can vary dramatically. Policies that provide coverage for 2 years are generally the least expensive, while some policies allow you to draw benefits up to a certain age, say age 70. The longer the benefit period, the more expensive the premium will be. Your company’s disability insurance booklet should list the benefit period that is offered by your employer usually this period is already set by your employer. In contrast, with individual disability policies, you can select the benefit period that is right for you while fitting within your budget.
The way your insurance company defines a disability matters, and it can vary drastically
There is a big difference between “any occupation” and “own occupation.” Many employer provided plans have an “any occupation” definition of coverage. This means that regardless of what you are currently doing for work, you have to be too sick or hurt to do ANY job in order to be able to draw your benefits. If you are capable of performing a lower paying job, say as a telemarketer or cashier, your insurance company can deny your claim on the grounds that you are still able to perform an occupation.
This is drastically different than an “own occupation” policy, which you can choose in an individual policy. Own Occupation policies protect you when you are unable to perform the main duties of your own occupation, ensuring you have the time you need to recover and get back to your normal life and work. At Policy Wizards, we strongly recommend protecting your income and your life’s work with an “own occupation” disability insurance policy.
Employer sponsored coverage isn’t portable
Our parent’s generation held the same job for 30+ years, but now, that’s a thing of the past. If you leave your job, your employer-sponsored policy will be cancelled. With individually purchased coverage, it doesn’t matter if you change jobs, have fluctuations in income, or start your own company. That coverage is with you throughout your working years. Because it’s easiest to qualify for coverage while you are healthy, it gets more expensive to buy coverage as you get older. It’s important to lock in your medical insurability early, while you are a good candidate for good coverage at low rates. Individual disability insurance policies are a great option, even if you know your job may change many times in the future.
Your health is not permanent, but you can plan ahead to be prepared. We strongly recommend going through the underwriting process for disability insurance while you are still healthy enough to have maximum control over your insurance decisions.