Disability insurance benefits can help protect your top financial asset
Protecting the ability to earn an income is why disability insurance for individuals is a must-have.
Disability insurance comes in two main forms: short-term and long-term.
Short-term disability coverage provides benefits for anywhere from three weeks to a year. It’s meant to help you minimize losses from temporary health issues, injuries or pregnancy. Many employers provide STD coverage as a free benefit, with coverage starting after you’ve used all your paid sick leave. Once benefits start, you typically get 40% to 60% of your pay, and it’s generally taxable.
Long-term disability coverage pays benefits if you’re still disabled and unable to work when your STD coverage ends, and it may continue to pay benefits for years – often to age 65. Many employers offer LTD plans, but you may have to pay for some or all of the cost.
Why not simply rely on getting disability benefits from Social Security? It’s hard to qualify for them. Only about 4 in 10 (42%) respondents in a survey by DisabilitySecrets.com were ultimately approved for benefits.
If you have long-term disability insurance through work, it could provide up to 66⅔% of your income. However, if your employer pays the premium, the benefits are usually taxable. In that case, you should consider buying a supplemental disability policy to help fill the gap. You have the option of paying for private supplemental insurance with after-tax dollars, which will generally result in any benefits being paid tax-free.
Remember that employer-provided coverage ends when your employment ends. Even if you’re laid off, you can still become ill or be injured, so consider getting an individual disability insurance policy – either in place of the policy your employer offers or as a supplement.
Contact us to talk with an Edelman Financial Engines advisor about how to obtain an individual LTD policy to supplement your employer-provided one and whether that might fit into your financial plan.
Neither Financial Engines Advisors, L.L.C. nor any of its advisors sell insurance products. Edelman Financial Engines affiliates may receive insurance- related compensation for the referral of insurance opportunities to third parties if individuals elect to purchase insurance through those third parties. You are encouraged to review this information with your insurance agent or broker to determine the best options for your particular circumstances.