Protect Your Paycheck

Simply put, if you have a job, you most likely need disability insurance. The possibility of a disabling illness or injury may seem remote, but statistics paint a different picture. You actually have a three in 10 chance of suffering a disabling illness or injury during your career that would keep you out of work for three months or more.¹ (If you’d like to calculate your odds, try the Personal Disability Quotient calculator.)

For many, a sudden interruption of income could have serious financial consequences. Most of us have some kind of personal debt, typically a mortgage or credit card bills. How long would you be able to maintain your standard of living if you were too ill or injured to work for an extended length of time? If you are like most, it wouldn’t be long at all: 50 percent of working Americans couldn’t make it a month before financial difficulties set in, and more than one in four would have problems immediately, according to a LIFE Foundation survey.²

The other thing to keep in mind is that an accident or illness that keeps you out of work for a period of time can be very costly. That’s because people who become disabled not only need to continue providing for loved ones, but for themselves as well. A disabling injury or illness could lead to medical bills, modifications to your car or home, or other unforeseen needs that can be quite expensive. For all these reasons, almost anyone who works—whether they’re single, married, with children or without—should consider disability insurance.

Because each person’s situation is unique, there is not set answer to that question. A good first step is to find out what kind of coverage you have through work. Check with your HR or benefits manager to see if you have short-term, long-term or both of these types of coverage. Then you can use the Disability Insurance Needs Calculator to see if the disability insurance benefit you have is sufficient to meet your needs.

If you have no coverage at all through work, then it is important that you explore your options in the “How Do I Get Coverage” and “Where Do I Buy It” sections of this website, in addition to calculating your needs.

In the event you sustain a disabling injury or illness and are unable to work, there are a number of sources of disability benefits you might be able to tap into. Just be mindful that there are limitations on the benefits available through these sources and sometimes the benefits won’t be sufficient to meet your income replacement needs. In those instances, you’ll want to seriously consider obtaining additional coverage, either through work or on your own.

Employer-Sponsored Coverage

The main source of disability income protection in the United States is coverage provided or sponsored by employers. Many employers, especially larger ones, provide their employees with group insurance coverage. There are two forms—short-term disability (STD), which replaces a significant percentage of your income for about three months in most cases, and long-term disability (LTD), which typically pays 40% to 60% of your base salary (pretax) for longer periods.

Often, employees will be given the option to add to the baseline coverage that their employer provides. Some companies don’t provide disability coverage but help their employees by giving them the opportunity to purchase coverage on a voluntary basis. With this type of program, employees, rather than the employers, pay the full cost of the coverage. A benefit of purchasing disability coverage at the worksite is that it’s generally easier to qualify for than coverage you purchase on your own. Check with your employer’s human resources department or benefits manager to see what coverage and purchase options your company’s plan provides.

Individual Disability Insurance

The most flexible and reliable source of coverage is an individual disability insurance policy you purchase on your own. A privately owned policy is portable, meaning you won’t have to worry about losing coverage if you change jobs. Generally, most individual plans will pay between 40% to 65% of your predisability gross salary. When the premiums are paid with after-tax dollars, benefits are received income-tax free.

Workers’ Compensation

If you suffer a disabling illness or injury while at work or as a result of your work, you might be able to count on Workers’ Compensation insurance to replace some of your salary. All states require employers to provide Workers’ Compensation coverage. It typically pays about two-thirds of your predisability income. However, it only pays in cases where your illness or injury is related to your work, and the vast majority of long-term disabilities—90%, according to the National Safety Council—are not job-related.

State Disability Insurance Programs

A handful of states provide short-term disability coverage—typically for up to six months—that workers pay for through a payroll deduction. They are California, Hawaii, New Jersey, New York and Rhode Island, as well as Puerto Rico. For those who live in these states, this can be an important source of short-term income replacement.

Social Security

The federal government administers a disability insurance program that covers most workers, but qualifying for benefits is far from a sure thing and the payment levels (determined by your salary and work history) are fairly modest. Currently 65% of applications for Social Security disability benefits are initially denied, and the average monthly payment of current beneficiaries is $1,065, which would place your income barely above the poverty line.

Through Your Employer

Your employer, particularly if you work for a large company, may provide short- and/or long-term group disability coverage at no cost to you. One of the best features of employer-provided coverage is that there is no underwriting, meaning you automatically qualify for coverage.

You should be aware that if you start a new job and have a pre-existing medical condition, there may be short-term limits on your coverage, typically a waiting period of 12 months. Another valuable benefit of employer-provided coverage is that you often have the option to increase your coverage from, say, half to two-thirds of your base salary. To qualify for additional coverage, you may have to answer a few basic questions about your health. It’s important to keep in mind that if you have group coverage and you leave your job, you generally are not able to take the coverage with you.

If your employer does not provide group disability insurance coverage, it may make a disability benefit available to you on a voluntary, employee-paid basis. While you pay the full cost of the benefits under a voluntary arrangement, there are several advantages to buying disability insurance this way. Voluntary plans help workers get coverage more easily than if they were to purchase an individual policy on their own outside of the workplace. Premiums are typically paid through an automatic payroll deduction and can be as much as 10% to 20% less because of efficiencies in enrollment and billing procedures. Additionally, you may be eligible for more coverage under a voluntary plan than is offered by a traditional group plan.

Through a Professional Organization

Many professional associations offer their members the opportunity to purchase disability insurance through a group plan. Typically, little underwriting is involved and premiums are based primarily on your age and income. This type of coverage is generally cheaper than an individual policy you would purchase on your own through a local insurance professional. If your need for coverage is great and your budget is limited, this is definitely an option you’ll want to explore. However, there are several drawbacks. If you change professions, the coverage may not follow you. And there’s always the chance your professional organization could decide to drop its disability coverage. That can’t happen with most types of privately purchased disability insurance, which are guaranteed renewable as long as you pay your premiums.

Buy It On Your Own

Another good alternative is an individual disability insurance policy you purchase on your own through a qualified insurance professional. You never need to worry about losing coverage if you change jobs. An individual policy also gives you the opportunity to consider policies from a multitude of carriers. If you buy through work, you’re usually limited to buying (or increasing) coverage from the one carrier with which your employer is contracted. One downside to individual coverage is that it can get pricey depending on the policy’s features and benefits.

Once you have a sense of your need for disability insurance, it’s important to speak with an insurance expert. With so many options to weigh, an insurance professional will be able to explain the various features of disability insurance policies and help you strike the appropriate balance between the benefits you desire and the money you have to spend.

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