Insurance Through Work: The Good, the Bad, and the Ugly?
Should you rely on employer disability insurance?
In these challenging economic times, with fewer employers offering benefits, group disability insurance is a valuable perk. Many larger companies offer some type of disability insurance, but is it enough?
Group Long Term Disability (LTD) insurance typically replaces about 60% of an employee’s salary – not including any bonus or other compensation. Benefits usually start after short term disability benefits end, and continue for a specified number of years or to a stated age, such as 65. While group LTD is a valuable benefit, it comes with limitations:
- Group coverage may be fully paid for by employers, but you must pay federal and state income tax on the benefits, meaning that your actual benefits may be closer to 40% of your income. Most group plans also have maximum benefit amounts, which could leave you with far less than your family needs.
- Many group LTD insurance plans are “own-occupation” policies for only the first two years of a disability – the remainder of the benefit period typically switches over to “any-occupation,” meaning that if you can’t perform your job, but can work in another capacity, your group policy benefits end, even though your earning potential might be severely diminished.
- Group LTD coverage isn’t flexible or portable. If your employer decides to discontinue coverage, you lose your job, or you leave voluntarily, you lose your disability benefits.
If you’re lucky enough to have coverage through work, it’s important to understand your group benefits and identify any gaps in coverage so you can determine whether to supplement your employer plan.
Considering one in eight workers will be disabled for five or more years over the course of their career, having the flexibility of an individual LTD plan can be crucial.*
Adding a robust individual LTD policy to your group plan can bring your total coverage up to 80% of your total compensation. The best individual plans like those offered through the Alum LTD program offer “own-occupation” coverage for as long a benefit period as you’d like—even to retirement age.
Owning an individual policy also puts you in control. You choose your coverage amount, benefit period, elimination period, and other options that best suit your situation, now and in the future. Including a future purchase rider will allow you to increase your coverage with no further underwriting if you need more protection down the road.
Employer disability insurance is a valuable perk, but it’s often not enough. Review your group plan to determine its sufficiency – whether it’s the amount of income replacement you’ll get, the length of time you’ll be protected, or the policy flexibility– to ensure you’ve got adequate protection in place. If you determine that you need more, consider Alum LTD, with an exclusive 15% discount for alumni and their immediate family members. Advisors are available—at no cost— to help review your current coverage, your needs, and your options.