The right supplemental disability insurance policy can plug the holes in your group disability insurance coverage.
One of the challenges of buying insurance is knowing you have enough.
On the one hand, it’s hard enough to spend monthly on something you hope you never use, let alone buying too much.
On the other hand, the worst time to find out you don’t have enough insurance is the moment you do need it.
This is especially true for disability insurance, which helps to replace your income in the event you can’t work due to injury or illness.
Many people who rely solely on group disability insurance many find they don’t have enough coverage. That’s because group policies only cover up to 60 percent of a person’s pre-disability income. And if your premiums are paid by the group sponsor (e.g., your employer), those benefits will be taxable.
To bridge the gap between what group disability pays and what people need, the industry has created supplemental disability insurance.
Supplemental long term disability insurance
People who may need supplemental long term disability insurance include those to need to extend the monthly benefit maximum and/or how long they receive benefits.
Insurance companies often limit the monthly income amount they are willing to cover for any one person. Therefore, high-income earners dependent on a group policy will only have a fraction of their income replaced.
Supplemental long term disability coverage can also extend the length of possible claim payments. Group plans may limit benefits to five to 10 years. Government programs typically cap benefits at a year.
If your only coverage is a group or government plan, you will need supplemental long-term disability to extend your benefits to age 65.
Supplemental short term disability insurance
Most short term disability insurance policies are offered as part of group coverage. If you get short term disability benefits through an employer or government, there will likely be gaps in your coverage. These gaps may include a small benefit maximum, extended elimination period, or short benefit period. A supplemental disability insurance policy can help fill those gaps.
Supplemental short term disability insurance is often a maternity leave benefit. But it also has holes.
One is the lengthy elimination period — typically 60 to 90 days — which rarely enables women to collect on claims for pregnancy-related disabilities. Also, individual plans typically do not cover recovery from normal labor and delivery. This is only offered through a supplemental plan through an employer.
Supplemental disability insurance may be worth the cost if you are depending on Social Security Disability Income (SSDI). That’s because the federal program only covers disabilities that last longer than 12 months. Plus, most people who file a claim for SSDI are denied benefits. Therefore, you will likely need a supplemental policy in addition to relying on public programs.
If you are under the age of 65 and on Medicare because of a disability, you may be able to obtain Medicare supplemental insurance. This is called Medigap insurance. It can help cover some health care costs that come with original Medicare.
Unfortunately, federal law does not require insurance companies to sell Medicare Supplement Insurance. A few states, however, do have this requirement, including:
California, Colorado, Connecticut, Delaware, Florida, Georgia, Hawaii, Illinois, Kansas, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, New Hampshire, New Jersey, New Mexico, New York, North Carolina, Oklahoma, Oregon, Pennsylvania, South Dakota, Tennessee, Texas, Vermont, and Wisconsin.
According to Medicare.gov, if you have group health insurance through an employer or union, you likely don’t need Medigap. That’s because your employer plan typically provides similar coverage to what you get from Medigap.
Is supplemental disability insurance worth it?
Supplemental disability insurance is designed to complement coverage that only meets a fraction of a person’s needs. This includes disability programs offered by employers, unions, and the government. These group and government programs are designed to only provide a minimal amount of disability coverage. This makes supplemental disability insurance almost necessary.
On the other hand, an individual disability policy can be tailored to meet the coverage needs of the applicant. With more comprehensive coverage, a worker likely doesn’t need to spend the extra cost on supplemental disability insurance.
Jack Wolstenholm is the head of content at Breeze.
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