Doesn't my employer provide disability insurance?
We sure hope so, but be sure to check! You're actually less likely to get long-term disability insurance from your employer than life insurance. Consider these facts:
- Among medium and large firms, 87% provide life insurance benefits, while only 43% provide long-term disability insurance.*
- Among small firms (fewer than 100 employees), 62% provide life insurance benefits, while only 22% provide long-term disability.*
- Among blue collar and service workers, the folks most likely to be seriously injured on the job, long-term disability insurance is offered by just 10% of small firms.*
- Finding affordable disability insurance is a major challenge for the self-employed, particularly if they work out of the home.**
Given that long-term disability insurance is more important than life insurance, these numbers are surprising. If your employer is among those who have overlooked disability insurance, you may want to suggest a reallocation of benefit dollars. You and your co-workers can get a better deal on life insurance (as opposed to disability insurance) on the outside.
Even if you are fortunate enough to get long-term disability insurance through your employer, take a good look at the policy:
- What fraction of your income does it replace? Typical group policies for long-term disability pay 60% of your current income. Also, if overtime, bonuses, and sales commissions are a big part of your take-home pay, check to see if these are covered.
- What is the monthly maximum? Most policies cap income replacement at a certain level. If your employer's policy is capped at $5,000 per month ($60,000 per year), for example, any salary beyond $100,000 will see less than 60% in replacement income.
- How long can you continue to collect long-term disability? Make sure that the policy covers you until age 65, not just five or 10 years.
- How does the plan define "disability"? Unlike health insurance plans, there is no "standard" disability coverage, and companies can save money by purchasing skimpier plans for their employees. Some common disabilities that may or may not be covered include back injuries, mental illness, stress-related disorders, chronic fatigue syndrome, and severe migraine headaches.
In short, if your employer provides long-term disability that covers 60% of your total take-home pay until age 65 with a generous definition of "disability," give your employer a hearty "huzzah!" You're in pretty good shape, Fool!
One last thing to ask about: Some group disability policies offer extra coverage (in percentage increments) at a very reasonable price, at least in comparison to what it will cost on the outside. If your employer offers this too, take a good look. It may very well be worth it.
* U.S. Census Bureau, Statistical Abstract of the United States: 1999
** Just ask anybody who's self-employed, Fool!