Is "I Have it at Work" Enough Disability Insurance to Protect Your Family?

Group LTD is usually a free benefit provided by your company, but it is usually not enough to adequately protect the income of a successful white-collar professional. Unfortunately, too many people find all of the gaps in coverage at the worst possible time. If you are making a six-figure income Group LTD is just not enough, you need to buy your own supplemental disability insurance policy to make sure your income is adequately protected.

Why Do I Need This?

We offer you the ability to review some disability insurance statistics, but there are a few that stand out to most people;

• 1 in 4 workers will become disabled during their working years¹
   
• 1 in 8 workers will experience a long-term disability that lasts longer than 5 years¹
   
• 90% of long-term disabilities are caused by illnesses such as cancer, heart disease, and arthritis¹

Group LTD is Usually Nowhere Near What You Expected

If you think you have 60% of your income protected because you have a free LTD policy at work...THINK AGAIN!

There is a maximum monthly benefit these plans will pay, your benefit will be taxed during a claim, and the provisions of the policy itself are nowhere near as good as high-quality disability insurance policies like Provider Choice. Many people who become disabled find out at the worst time that the 60% they were expecting turns out to be 40% or much less if they made a higher income.

Supplemental Disability Insurance Helps Make Up The Difference

There are many reasons why a Group LTD plan does not provide the benefits employees expect;

• May not cover bonus or commission income
   
• Your Income is higher than the monthly maximum benefit of $5-$10K
   
• Group LTD benefits are taxed during a claim if your company pays for it for you

Only by purchasing an individual disability insurance policy to supplement your group plan can you help get an income replacement ratio closer to 60%. If you do the math you will always decide to purchase a supplemental plan. 

Doing The Math

The best way to decide if you need a supplemental disability insurance policy is to do the math. In this example, we are going to use somebody who makes $200,000 a year to show how they only get $7,800 a month from their Group LTD plan.

1. Divide your annual income by 12 (200,000/12 = 16,666) to determine your monthly income.
    
2. Multiply your monthly income by 60% (16,666 x .60 = $10,000) to determine your available monthly benefit. Keep in mind if this number turns out to be larger than 10,000 you are probably capped at 10K.
    
3. Multiply your monthly benefit by the correct tax bracket ($10,000 x .22 = 2,200)² and then subtract that number (10,000 - 2,200 = $7,800) to determine how much somebody making $200,000 a year will have to live on during a claim.

Reverse Discrimination for Higher Income People

The higher your income is, the more you need a supplemental disability insurance policy. Every Group LTD plan has a maximum monthly benefit, and $10,000 is the most common plan on the marketplace today. If you make more than $200,000, the more you make the more you need your own policy. If you make $400,000 you are still only getting $10,000 a month, so the more you need to buy your own policy to make up the difference. We well a lot of policies to managers and executives across the country who have a greater need to supplement their LTD plans.

¹ https://disabilitycanhappen.org/disability-statistic/

² Assuming 22% married tax bracket.

This material contains the current opinions of the author but not necessarily those of Guardian or its subsidiaries and such opinions are subject to change without notice.