Why You Need Disability Insurance
Even if your employer provides coverage for you, it might not be enough.
I have disability insurance at work. Is there any reason why I'd need to buy a policy on my own?
Perhaps. Having disability insurance at work is a great start. The policy can help if you get sick or injured and are unable to work. But your employer's coverage might not provide enough money to pay all of your bills.
Employers' disability insurance policies generally cover only 60% of your salary and cap monthly benefits at $5,000 to $10,000 -- up to $60,000 to $120,000 per year before taxes -- even if that is much less than 60% of your base income. And that 60% of income rarely includes commissions and bonuses, leaving many salespeople, stockbrokers and top executives with a lot less money than they're used to living on.
From just $107.88 $24.99 for Kiplinger Personal Finance
Become a smarter, better informed investor. Subscribe from just $107.88 $24.99, plus get up to 4 Special Issues
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Find out exactly how much your employer's disability insurance policy would pay if you became disabled. If you wouldn't get enough to cover your monthly bills, then it's a good idea to get an individual policy to fill the gaps. You might want to start your search, though, by asking if your employer offers extra coverage if you pay it for yourself.
An individual disability policy can increase your coverage, and you can keep it even after you leave that job. And if you pay the premiums on your own, then the benefits will not be taxed -- unlike disability insurance benefits from an employer-paid policy, which are generally taxable.
When shopping for your own disability insurance policy, look carefully at the definition of disability. This is the key phrase that determines under what circumstances the policy will pay. This definition can vary enormously. Some disability insurance policies will pay if you can't do your current job, even if you can do another job (called an "own-occupation" policy). Some will pay some benefits if you can't earn as much money as you could before the disability. And others will only pay if you can't do any job at all. If you have a highly specialized career -- such as a surgeon -- then it may be worthwhile to pay extra for an own-occupation policy.
Also check out the length of the benefits. Some pay for a few years, others until age 65, and a few will pay for your lifetime, which may be more coverage than you need if you already have a lot of retirement savings. Find out how the benefits will rise with inflation. And see if the policy offers "residual benefits," which will provide some payment if you become partially disabled and have to cut back on your hours.
For more information about shopping for disability insurance, see Long-Term Disability Income Protection, a brochure issued by the Consumer Federation of America and the American Council of Life Insurers.
-
Stocks Chop as the Unemployment Rate Jumps: Stock Market TodayNovember job growth was stronger than expected, but sharp losses in October and a rising unemployment rate are worrying market participants.
-
Should You Renew Your CD?With rate cuts impacting earnings, we examine if now is a wise time to renew CDs.
-
7 Ways to Plan Now to Save on Medicare IRMAA Surcharges LaterUnderstand the critical two-year lookback period and why aggressive planning before you enroll in Medicare is the most effective way to minimize IRMAA.
-
Credit Report Error? They All Mattercredit & debt Don't dismiss a minor error. It could be the sign of something more serious.
-
Insurance for a Learning Driverinsurance Adding a teen driver to your plan will raise premiums, but there are things you can do to help reduce them.
-
529 Plans Aren’t Just for Kids529 Plans You don’t have to be college-age to use the money tax-free, but there are stipulations.
-
When to Transfer Ownership of a Custodial Accountsavings Before your child turns 18, you should check with your broker about the account's age of majority and termination.
-
Borrowers Get More Time to Repay 401(k) Loans
retirement If you leave your job while you have an outstanding 401(k) loan, Uncle Sam now gives you extra time to repay it -- thanks to the new tax law.
-
When It Pays to Buy Travel Insurance
Travel Investing in travel insurance can help recover some costs when your vacation gets ruined by a natural disaster, medical emergency or other catastrophe.
-
What Travel Insurance Covers When Planes Are Grounded
Travel Your travel insurance might help with some costs if your trip was delayed because of the recent grounding of Boeing 737 Max planes.
-
Ways to Spend Your Flexible Spending Account Money by March 15 Deadline
spending Many workers will be hitting the drugstore in the next few days to use up leftover flexible spending account money from 2018 so they don’t lose it.
