Supplemental Disability Insurance
Because Group Disability Coverage at Work is Just A StartWhat is it?
Supplemental disability insurance is coverage purchased to fill in the gaps found with the group disability insurance offered by your employer.
Protecting Your Income
A supplemental disability insurance policy can reduce your risk of severe income loss in several ways:
- Policies can be written to extend your income coverage to 100% very affordably.
- Because you pay the premium, all benefits received via the supplemental policy are tax-free.
- Gaps in coverage identified by your insurance agent can be specifically closed in the supplemental policy.
- While group coverage ends when you leave your employer, supplemental coverage remains with you regardless of for whom you work.
Group disability insurance can be a great start with respect to insuring income in the event you can't work due to injury or illness.
Many medium and large companies offer a group policy to employees for just a few dollars every pay period that is automatically deducted from your paycheck.
The problem is that group policies are typically riddled with limitations and coverage exceptions. For instance:
- The average group policy pays up to 60% of your regular income. However, because premiums are primarily paid by your employer, most, if not all benefits received are fully taxable as income!
This means your 60% income coverage just dropped to around 42% from a take-home dollars standpoint. - Group disability policies generally cap benefits at between $5,000 and $6,000 per month, regardless of your salary.
If your income exceeds these limits, you could find your household cash flow severely constrained even though your policy is paying its maximum benefit. - Read the fine print! Group policies can include exclusions or limited coverage for specific situations such as mental or nervous-related conditions. Coverage for alcohol or drug-related disabilities can be limited to as short as 6 months or excluded altogether.
The biggest problem with group policies is the false sense of security they give.
"People think because they deduct a few bucks from their paycheck each time that they're covered if they can't work.", explains Rene Apack, President of Insure Your Future, the nation's leading independent disability insurance brokerage. "It's only after the first disability income check that the hard reality sets in, and by then, supplemental coverage is no longer an option."
While life insurance is generally straightforward (benefits paid upon death), group disability policies get very specific regarding under what conditions and for how long benefits will be paid.
It's only after the insured gets sick or hurt and can't work that he/she find assumptions made about their coverage are wrong and his/her take-home benefits are actually much less than they used to make.
If you are considering supplemental disability insurance and have questions, please submit your information using the form to the right.