Your Employer-Sponsored Disability Insurance May Not Fully Protect You

A disability can have a huge financial toll on those it strikes because it can take away their biggest asset, the ability to earn a living. The U.S. Department of Housing and Urban Development reports that more than 45 percent of all home foreclosures are caused by a disability. Disabilities, whether caused by illness or injury, are more common than you think. According to the American Council of Life Insurers, one in seven workers will experience a disability that lasts for more than five years.

About half of all mid to large-size companies offer disability insurance. If you are lucky enough to work for one of them there still is a good chance that you don't have adequate coverage to save you from financial disaster. Because the odds of a disability are so great, you should fully understand the coverage offered by your employer-sponsored policy and evaluate whether or not you are adequately protected.

What You Need To Know About Group Policies
A typical employer-sponsored group disability insurance plan replaces 60 percent of your salary. However, you will have to pay taxes on benefits from your group policy which could leave you very short on funds. Disability benefits are only tax-free if you purchase the policy yourself.

Group policies also often have a benefits cap limiting the maximum they will pay out per month or per year. It is very important to find out your benefits limit. Your group policy might not even cover the full 60 percent of your income. Keep in mind that bonuses are generally not calculated as part of your covered salary for group disability insurance. Review your benefits period which details how long the policy will pay. It often extends just a set number of years or until you reach retirement age.

You will need to find out if the policy pays benefits if you can't perform your specific job duties ("own occupation") or if it only pays benefits when you can't perform any job ("any occupation"). This is a huge distinction. If you are able to perform another lower paying job you may find yourself without benefits.
A significant downside to an employer-based group plan is that it often doesn't stay with you if you switch jobs. Make sure to evaluate your disability coverage closely any time you change employers and to adjust any supplemental insurance appropriately.

Supplementing Your Group Policy
After you evaluate your group policy, you may decide it is in your best interests to supplement your coverage in certain areas. Supplemental insurance can be obtained to extend coverage to an additional 10 to 20 percent of your income. Higher benefits limits are possible with an individual plan, which can further extend coverage. Should you purchase your own long-term disability insurance or a supplemental policy, make sure the individual policies don't overlap with your group coverage in order to cut down on premium costs. You should also make certain that any policy you purchase is guaranteed renewable so that you don't have to requalify each year.

Not all disability insurance policies are the same. Low-cost coverage may sound appealing, but such a policy could have so many limitations you may never collect a cent should a disability arise. Exercise caution in this area and make sure that you definitely get what you pay for when it comes to disability insurance.