Much has been said about the inadequacy of group disability insurance plans offered by employers. For example, group disability plans generally have the following shortcomings:
The plans pay up to 60% of regular income, however, all benefits are fully taxable, reducing take-home pay to roughly 42% of your standard paycheck.
Group benefits are commonly reduced based income from other sources such as federal Social Security Disability Insurance (SSDI), Worker's Compensation, or any plan/program toward which the employer contributes or makes payroll deductions.
Group coverage has monthly benefits limits, usually in the $5,000 range (before taxes). If your annual salary is more than ~$70,000, you will find benefits from your disability insurance to be woefully less, even though the policy is paying a 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.
While such policies often have these and other limitations, group coverage can provide an excellent foundation for proper income protection at a very low monthly cost.
The problem is that many people assume group coverage is the entire answer when, in fact, it is just a beginning.
"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."
Supplemental disability insurance is coverage purchased to fill in the gaps found with the group disability insurance offered by your employer.
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.
Depending on your group policy, a supplemental policy can be further customized to fit coverage to your specific needs.
Apack continues, "The most affordable disability coverage available is supplemental insurance. We have clients that pay less than $60 per month for coverage that shores up their group disability to cover 100% of their regular income and closes gaps in their employer's policy."
Income Protection Takes Planning
Supplemental insurance can be a viable, affordable solution for couples planning to have a child as well. The number one cause of missing work for 180 or less consecutive days (i.e., short term disability) is pregnancy. The second leading cause of long term disability (over 180 days) is also pregnancy, both before and after delivery.
Future moms can apply for insurance supplemental to their group coverage prior to becoming pregnant as a hedge against missing work during the maternity months. Once back at work, the option exists to continue the coverage or let it expire.
The key to protecting a household's cash flow during and after pregnancy is for the future mom to get supplemental coverage before getting pregnant. Once pregnant, the disability benefits insurance companies offer disappear.
"We literally get 2-3 calls per day from women that are already pregnant looking for disability insurance. We'd love to sell them a policy but the dozen or so major carriers we work with have no such coverage," explains Apack.
Don't let your group disability benefits insurance give you a false sense of security. It's cheap and it's easy but it's just a start! True income protection can be affordably achieved by strengthening your group policy with supplemental disability insurance.