Most employers offer some form of group disability income insurance. However, the features and benefits of group coverage can vary greatly, so it pays to know the specifics of what your group policy offers.
The first step is to find out whether your employer offers short-term disability coverage, long-term disability coverage, or both.
Short-term disability coverage usually provides a portion of your salary for anywhere from three to six months and sometimes up to one year. This coverage is often adequate for illnesses and injuries from which you can quickly recover. The length of coverage depends on the policy, and in some cases, where you live. For instance, Hawaii, New Jersey, New York, and Rhode Island require most employers to provide disability benefits for up to 26 weeks. In California, most employers must provide coverage for up to 52 weeks. If you become disabled, coverage may begin right away, or there may be a waiting period (also called an "elimination period").
Long-term disability coverage, designed for illnesses or injuries that sideline you for an extended period of time, Benefits from these policies generally continue until either age 65 or your retirement age under Social Security. While no laws require employers to provide long-term disability coverage, about half of all mid-sized and large employers provide some firm of long-term disability income insurance. Long-term coverage often kicks in when short-term coverage ends. If no short-term disability coverage exists, there may be a waiting period (also called an "elimination period") of up to several weeks before benefits will be paid.
The next thing you'll want to find out about is the benefit level, or how much money you will receive if you become disabled. Short-term disability policies may pay a high percentage of your salary, even 100 percent, but only for a limited period of time. Long-term disability policies typically pay less, often 40 percent to 60 percent of your current pay, although you may be able to purchase additional coverage through your employer.
Several factors can affect the amount of your disability payments from your employer. There may be a monthly cap on the dollar amount that you can receive, such as $3,000 or $4,000 per month. Because of this cap, if you earn a high salary, your long-term disability may pay less than you think. Paying your premiums with pre-tax dollars (your paycheck usually notes this) can also reduce your benefit level, since in most cases, benefits will then be taxable. Additionally, the company's policy may deduct other payments, such as Social Security, from your benefits when calculating your total benefit.
The final piece of the puzzle and a very important one is understanding how your group policy defines a disability. For instance, some policies define it as the inability to perform any job for which you are reasonably qualified by training, experience and education. Others may define it as the inability to perform your specific job. Some may even mix the two, providing own occupation coverage for an initial period, such as one or two years, and any occupation coverage after that.
To learn more about your group policy, start with your employer's benefits office or human resources department. Some good questions to ask are:
- What type of group disability coverage does the company offer?
- How does the policy define a disability?
- If I become disabled, how long do I need to wait until benefits begin?
- How much does the policy pay? Is there a monthly maximum?
- How long will my payments continue?
- Does the policy take other disability coverage (such as government programs) into account when calculating my long-term disability pay?
An insurance professional can review the answers to these questions with you, help you understand what other income might be available in the event of a disabling injury or illness, and advise you as to whether an individual disability insurance policy might be necessary.