Your employer may offer an income-based disability insurance (DI) plan for employees. It is a generous offer indeed. Before you cross this crucial protection off your financial plan to-do list, you should examine it closely. It might not be sufficient to safeguard your economic interests.
Workers’ compensation insurance policies get designed to cover a portion of your income if you’re unable to work since an injury or illness that qualifies as qualifying usually falls short of the amount and kind of protection your family may require.
The primary ways that an employer-sponsored DI policy can cause financial hardship for your family are:
- The type of coverage
- Portability
- Benefit size
- Offset clauses
- Definitions of disability
- Tax consequences
The Reason Why Disability Income Insurance Is Crucial
The disability insurance policy and life insurance are essential elements of financial planning. Without DI insurance, the savings you earn over a long period of injuries or illness can evaporate quickly.
Many families are aware of the necessity of having life insurance to ensure their loved ones are protected. However, only some realize the need for DI insurance to safeguard their earnings stream. One in four 20-year-olds could be unemployed for at least a year due to a crippling health issue before retirement.
The Type of Coverage
As you review your workplace DI policy, pay attention to what type of coverage your employer provides short-term, long-term, or both.
Short-term disability coverage usually pays benefits for a brief period following an injury or illness, typically between three and six months. Many employers offer short-term DI benefits through their benefits package for group employees, and some states have a short-term disability plan.
The most frequently cited causes of short-term disability claims are problems with pregnancy; musculoskeletal conditions which affect the spine and back as well as hips, knees, and shoulders; and various body parts; digestive problems as well as mental health issues and injuries.
Suppose you qualify under the conditions of your policy. In that case, your long-term benefits could offer a portion of income replacement for several years, such as 2 or 10, up to retirement age, or even for life. The longer the duration of your benefit and the longer the benefit period, the more you’ll pay in the form of premiums. In contrast, extended-term disability insurance gets designed to cover your income when your health condition prohibits you from working beyond the point where the shorter-term DI insurance coverage ceases.
Long-term group DI insurance get typically offered to mid- to large-sized employees.
It’s your responsibility to investigate your employee benefits and find any gaps in coverage that could expose your family to financial risk. A financial expert can help.
Portability
Whatever the value of your company’s DI insurance plan, you should buy an individual DI insurance policy.
A lot of groups’ DI plans need to get transferred. Why? If you quit, your current employer could lose insurance coverage, and the cost of the new policy may be too expensive due to age-related decline or medical conditions.
“Some employers’ group DI contracts have the option to transfer; however, it’s important to ensure you know the provisions you’ve got.” “It’s all about what will happen if you quit your job, become injured or sick, and don’t have any income coming in.”
Benefit size
Insurance for disability income, whether paid by company group policies or private ones purchased independently, isn’t intended to replace your entire payment. Most policies cover 40 and eighty percent of the annual salary paid to the policy owner.
To determine if you have sufficient DI insurance coverage:
- Look at your monthly living expenses and compare that figure with any benefit you could receive.
- Include your utility and housing expenses, food, insurance premiums, auto payments, and other debt obligations.
- Consider that your costs could differ if you had to cease working abruptly.
For example, you might not have to pay for commuting, and your tax liability might be lower. Still, the cost of health care could be higher following a diagnosis.
The coverage amount that is appropriate for you could vary. You might need less coverage when your spouse is not making a living or is working part-time but would like to return full-time to boost the household’s income.
Offset Clauses
Specific groups’ DI policy policies have offset clauses. These can reduce the number of your benefits.
An offset refers to following a claim group insurer who will provide any benefits you qualify for but only after you’ve applied for any other income sources for which you might be eligible. The DI benefits would later get offset with any other income you earn.
Definitions of Disability
A group DI insurance policies typically specify “total disabled”-the trigger for long-term benefits- as the inability to produce income. According to this definition, you are only qualified to claim DI benefits if you can do any job, even the minimum wage.
Policy owners can modify the privacy policy to incorporate an expansive description of a disability. Using DI policies that define “total disabled” as being unable to do the type of job in which you get trained or educated.
When looking into your options for private DI policy, seek policies that offer an expansive “partial disabilities” definition. Even if a sickness or injury only permits you to work a few hours each week at the job you need to get trained for, these plans might still provide rewards.
The elimination period is the time between a policy owner receiving a disability diagnosis and the time they are qualified for payments. The elimination periods for group DI policies are sometimes more significant, such as 90 days. Additionally, private DI insurance may get designed to have a shorter elimination time; however, this option usually has a higher premium.
Tax Implications
Also, when paying your DI insurance premiums through work with tax-free money, the benefit you receive is subject to taxation. It could result in a lower amount of use than you would expect.
If allowed, consider buying your group disability insurance using after-tax dollars, as you need an additional private insurance policy.
Conclusion
Insurance for disability at work is an excellent benefit, but it’s not always going far enough. To ensure your family’s financial security, examining your policy and finding any inconsistencies is essential. It might be beneficial to talk to an expert in finance who can provide advice on the type and amount of coverage for DI your family might need.
Ottawa Life Insurance is here to assist you with all your personal and business requirements for insurance coverage. Call us at (613) 454-1424 or email us at info@ottawa-lifeinsurance.ca for further information.
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