Is it wise to get additional disability coverage?

Question

I just signed up for additional (long-term) disablity insurance b/c I know my employer only doles out 60% of my base pay if I become disabled. Is this a smart move for a single person with no family close by?

How much a month is reasonable to spend?

Answer 1

You will still have bills to pay and 60% of your your normal wage will not allow you to live in the style that you have become accustomed to.Most of employment disability programs only last for 2 years and if for some reason you loose your job then you also loose the disability from your job.An insurance company can set you up for up to 100% of your wages for life and at usually at about the same premium that you would pay through your employer,remember most people change em[loyment at least 5 times in their career.So by exiting your program and insuring yourself through private means will insure that your premiums will not increase for the term that you choose and you will have that stability factor in place.You never now what is going to happen in your life so a private policy is always the best.

Answer 2

Hi everyone, your friendly insurance guy here again. :)

I'll start by answering your question and then explain the "why."

The answer: Yes, it was smart to sign up.

The why: Statistically the odds of becoming disabled severely enough to be out of work at least 90 days before you reach age 65 are about 1 in 7. That's just a little bit different from the odds of rolling a specific number on a single dice. Think about it this way: Pick a number from 1 to 6. I'll roll one dice and if that number comes up, you never work again. Does that sound like a gamble you'd like to take? I wouldn't.

The second "why" is this: Your employer's Disability Income Insurance (which we call DI in the industry even though it leaves off one word) is a group plan paid by the employer. It typically will replace 60-66% of your income, to a maximum of $5,000 per month, for a certain number of years if you meet a particular definition of disability. But here's the catch:

Employer paid DI benefits are taxable to you, the employee. If you're in a 25% tax bracket that 60% is only worth 45% of your income after taxes.

Supplemental DI, which you pay for, delivers a tax-free payout.

There are basically three levels of disability insurance:

Basic group (up to 66%, $5,000 per month typcially, is taxable, leaves you with about 45% of your income)

Supplemental (not taxable, typically replaces up to your full take home pay)

Catastrophic (replaces up to 100% of pay, not taxable, for when you get disabled in the most severe ways, called losses of Activities of Daily Living or ADLs. The ADLs are:
Dressing
Transferring (getting from bed to wheelchair, etc)
Eating
Continence (control of bodily function)
Toiletting (ability to use toilet facilities at all)
Bathing

The type and amount of DI you need will vary based on your situation. The most common and some of the most important considerations are:

Definition of disability (how the insurance company defines disability varies. The most beneficial to the consumer is called Own Occupation Definition, or Own OCC for short. It means "not working at your own occupation, under a doctor's care." A bit more restrictive is Modified Own Occupation, meaning "not working at your own occuparion, not working in any other capacity, under a doctor's care.)

Duration of Benefits (how long you get paid, the best being "to age 67" or "to age 65" in most cases)

Definition of Earnings (DI only replaces earnings as defined in the policy. If "earnings" means "salary" in your policy, it won't cover commissions or bonuses, so such a policy is relatively worthless to, say, a car salesman or realtor).

Feel free to contact me with any questions. DI can be complex and it is important to make sure you understand the product you own clearly.

Best wishes.

Answer 3

60% is standard but I would get as much as you can. I once heard that you are more likely to become disabled long term than die. Don't know if that is true but find it interesting that people will pass on LTD but have 500k in life insurance.

I think you did the right thing - unless you want to move back home with Mom and Dad if something happened, LOL

Answer 4

Absolutely. Disability insurance covers you in the event you cannot work. Since most of us must work to pay the bills, we all need this form of insurance. In most cases, the costs are fairly small compared with the size of the benefit.

Answer 5

It is some of the best money I ever spent ( and they had to talk me into it ), if it wasn't for the additional insurance I would have lost everything.