When you signed up for your employee benefits, you may have glossed over the section on disability insurance. If you’re healthy, it’s tough to imagine ever being unable to work—even for a short amount of time. But disabilities can happen, and your workplace coverage may not be enough.
According to the U.S. Bureau of Labor Statistics’ 2019 Employee Benefits Survey, most group long-term disability insurance plans only cover 60% of income. Even worse, most companies pay only the cost of insurance premiums—so workers will owe taxes on their payments.
One in four 20-year-olds will become disabled before retirement age, according to the Social Security Administration. While many rely solely on Social Security disability payments, the average payment is $1,234 per month. Plus, these benefits may be difficult to qualify for (we’ll cover more on that later.)
Short-term vs. long-term disability insurance
Your company may offer one or two types of disability insurance: short-term and long-term.
According to the Insurance Information Institute, you may wait up to two weeks (called the elimination period) to start receiving short-term disability payments—and the payments may last for up to two years. If your company only offers short-term disability insurance, you may be at risk if you become permanently disabled.
The waiting period for long-term disability may be several weeks to several months. It may be possible to shorten the elimination period by paying extra, though. You can collect long-term disability payments for anywhere from a few years to the rest of your life.
Disability insurance riders
Many disability insurance policies allow you to customize your coverage through riders. According to the Council for Disability Awareness, these riders—which may cost extra—are among the most common:
Residual disability benefit
If you are partially disabled, a residual disability benefit rider allows you to go back to work part-time while receiving a portion of your payments. The benefit is proportionate to how much income you have lost—so if you’re only making 40% of your former salary, that’s how much you will receive.
Cost of living adjustment (COLA)
To keep pace with inflation, your disability insurance benefits need to increase over time. A cost of living adjustment rider boosts your payouts every year—which is especially important for long-term disability.
Future increase option (FIO)
You may expect to earn more money throughout your career. The future increase option rider allows you to boost future coverage without proving your insurability through another medical exam.
Automatic benefit enhancement (ABE)
You can also increase your income through an automatic benefit enhancement rider. This rider matches your expected annual income hikes for five or six years.
Own occupation definition
One of the most important parts of your policy is the definition of disability. The best definition is “own occupation”—which covers you if can’t work in your current occupation. The least generous definition, “any occupation,” only pays you if you can’t work any jobs. The Social Security definition of disability is “any occupation,” which can make it difficult to qualify for.
Non-cancelable or guaranteed renewable
Disability insurance policies also offer a couple of protection features. A non-cancelable policy protects you from having the policy canceled unless you stop paying the premiums. You may renew every year without paying more. Guaranteed renewable offers the right to renew your policy with the same benefits—but your insurance company may raise the premiums.
Work with an independent insurance broker
If you need more disability insurance, you may want to work with an independent insurance broker. An experienced independent broker (versus someone working for one company) can review your current policy and suggest which companies may fill the gaps.