Why employer-provided disability coverage probably isn't enough

Why employer-provided disability coverage probably isn't enough

January 16, 2020

So you have a good job with good benefits- congratulations! Chances are these benefits include long-term disability coverage that may provide you with 60% of your income if you were to become disabled. Great, right? Maybe not. While some coverage is better than no coverage, the reality is you might not be covered as much as you think if your only policy is through your employer's group plan.

It's true that, on its face, most group long-term disability plans typically cover 60% of your income. If you dig a little deeper into the details, however, chances are you'll find a monthly cap on those benefits. That is to say, the employer plan will provide coverage for 60% of your income only up to a specified monthly amount. That monthly cap can depend on the size of the employer plan, so this is something to pay attention to no matter how large or small your income. 

Another policy detail to pay attention to is the distinction between "own occupation" coverage vs. "any occupation" coverage. Under own occupation, if you become disabled and can't do your specific job, then you qualify for benefits regardless if you are able to perform a different job. For example, if a UPS truck driver developed a chronic disease in her right foot and couldn't drive, she would qualify for her own occupation coverage regardless if she could work a desk job or be a greeter at Walmart. Typically, group long-term disability plans will provide own occupation coverage for a period of time (e.g., two years) at which point it switches over to any occupation coverage. So if after two years, our UPS truck driver still couldn't drive the truck but she was deemed able to work a desk job, then her coverage would end. 

Some other limitations of employer-provided disability coverage include the taxation of the benefits, the definition of "income" that the policy insures, and the fact that if and when you leave your employer your coverage will likely end. 

"Okay Courtney, so what do I do about this?"

I'm glad you asked! It would be worth your time to evaluate your employer-provided disability coverage and decide whether a supplemental policy is right for you. This is a policy you would purchase through a third party broker, separate from your employer. An individual policy can allow you to cover more of your income, you can opt for own occupation coverage, the benefit would be paid out tax-free, and the policy will go with you regardless of where you worked. You also have the option to add different riders, including a retirement savings rider which will help supplement your savings since you won't be contributing to an employer retirement plan if you aren't able to work.

The main downsides to these individual policies are that they do tend to be more expensive, and there's medical underwriting (think medical tests and exams) involved. But if you do qualify, this coverage can be invaluable. During our working years, we are far more likely to become disabled than to pass away suddenly, so this coverage can be crucial at a time when the last thing you and your family want to worry about is whether you have enough money. 

Contact Debbie if you'd like to set up a call to go over your disability coverage and decide if a supplemental policy should be part of your financial plan.