Employer-sponsored vs separate disability insurance

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Topic Author
United2008
Posts: 151
Joined: Tue Dec 01, 2015 7:01 pm

Employer-sponsored vs separate disability insurance

Post by United2008 »

Hi all,

I'm looking for thoughts on a disability insurance question. My firm provides no-cost disability insurance that will cover up to 60% of my income if I am disabled. I think the "same occupation" coverage lasts for 2 years and then it may fall back to a "similar occupation" standard (I believe-confirming with employer but this is taking some time). My question is whether I should supplement this disability insurance in some way with another policy. At least one source suggests that the maximum they will cover is up to an aggregate of 60% of my salary based on all disability policies (thus, making me ineligible for their policy) but I don't know if this is a universal rule or not.

My rationale for considering non-employer coverage is the potential for not having coverage if I change jobs (voluntarily or otherwise). Is it a good idea to pay for another disability policy (~$3k/year) at this time or am I better off conserving funds and saving to pay for a policy in the event that my employer situation changes. For background, I am the sole breadwinner for my family (spouse, 2 young kids and big mortgage/property tax bills), so income is essential.

As always, thanks in advance for your thoughts!
climbhigh
Posts: 18
Joined: Fri May 30, 2014 1:54 pm

Re: Employer-sponsored vs separate disability insurance

Post by climbhigh »

The issue of "same occupation" really depends on what your occupation is. I am a subspecialized surgeon, so for me to do something outside of my speciality would require me to go back and do another residency. Most doctors are not willing to go back and do another residency, given the time and financial commitments required. This is why most doctors find own-occupation disability insurance to be so important. If switching to a "similar" occupation is something you would be okay with and wouldn't require you to go back and do extensive training then you could certainly do without.

Another thing to consider are the taxes. The premiums for employer plans are commonly paid for with "pre-tax" income such that if you did become disabled, the payouts would be taxed as regular income. This is in contrary to a personal disability policy that you pay out-of-pocket with "after-tax" money for the premiums - in that situation if you became disabled the payouts to you would be tax free.
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ResearchMed
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Re: Employer-sponsored vs separate disability insurance

Post by ResearchMed »

United2008 wrote:Hi all,

I'm looking for thoughts on a disability insurance question. My firm provides no-cost disability insurance that will cover up to 60% of my income if I am disabled. I think the "same occupation" coverage lasts for 2 years and then it may fall back to a "similar occupation" standard (I believe-confirming with employer but this is taking some time). My question is whether I should supplement this disability insurance in some way with another policy. At least one source suggests that the maximum they will cover is up to an aggregate of 60% of my salary based on all disability policies (thus, making me ineligible for their policy) but I don't know if this is a universal rule or not.

My rationale for considering non-employer coverage is the potential for not having coverage if I change jobs (voluntarily or otherwise). Is it a good idea to pay for another disability policy (~$3k/year) at this time or am I better off conserving funds and saving to pay for a policy in the event that my employer situation changes. For background, I am the sole breadwinner for my family (spouse, 2 young kids and big mortgage/property tax bills), so income is essential.

As always, thanks in advance for your thoughts!
It would be risky to "save up in case you need to take out your own policy later".

For example, if you got sick or some chronic condition and lost your job (or got laid off, etc.), then you might not be able to purchase an individual policy.

Perhaps you could at the least get a slightly smaller policy of your own, which would guarantee you that level of disability coverage, if in the future you couldn't qualify for a larger policy?

Also, I am not familiar with any caps on total disability income allowed, so I can't comment about that "little detail"...

RM
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Zendelta
Posts: 79
Joined: Sun Nov 15, 2015 2:12 am

Re: Employer-sponsored vs separate disability insurance

Post by Zendelta »

United2008 wrote:Hi all,

I'm looking for thoughts on a disability insurance question. My firm provides no-cost disability insurance that will cover up to 60% of my income if I am disabled. I think the "same occupation" coverage lasts for 2 years and then it may fall back to a "similar occupation" standard (I believe-confirming with employer but this is taking some time). My question is whether I should supplement this disability insurance in some way with another policy. At least one source suggests that the maximum they will cover is up to an aggregate of 60% of my salary based on all disability policies (thus, making me ineligible for their policy) but I don't know if this is a universal rule or not.

My rationale for considering non-employer coverage is the potential for not having coverage if I change jobs (voluntarily or otherwise). Is it a good idea to pay for another disability policy (~$3k/year) at this time or am I better off conserving funds and saving to pay for a policy in the event that my employer situation changes. For background, I am the sole breadwinner for my family (spouse, 2 young kids and big mortgage/property tax bills), so income is essential.

As always, thanks in advance for your thoughts!
I am in a management job that is pretty much office work and travel so should be similar to attorney class. My employer coverage sounds similar to yours at 60% own-occupation; I got my own supplemental disability policy recently.

My total eligibility between the two policies is not capped, so what you heard from your source is not universal. None of the 5 quotes I got mentioned anything like that. If a large portion of your income is bonus they may not cover you up to 100% but ask around.

A couple considerations:
Would you actually be able to live comfortably on 60% taxed? I did not want to be reliant on my employer's coverage especially since I don't plan to be here for the next 30 years.

You will not generally be getting healthier and more insurable. Unless you have a specific reason for holding off, you may want to do more research now, esp as the primary breadwinner. Also, during the application/underwriting process if you have a dr's appt they ask you to disclose everything over again so I avoided scheduling appts until my policy was in place.

Consider getting a disability attorney in your state to review the employer plan docs. I got one to do this (on my private plan) and it was free; plus they brought up great points.

Good luck.
neuro84
Posts: 70
Joined: Thu Jul 24, 2014 11:25 am

Re: Employer-sponsored vs separate disability insurance

Post by neuro84 »

I currently have two policies - 60% of income through my employer (which is not "own occupation" and paid with pre-tax dollars, so benefit would be taxable) and another one which pays 5k/mo even though I currently only make about 4k/mo.

My case is somewhat unique in that I'm a resident physician, and my income will likely go up ~300% after I finish residency in 2.5 years. Still, it goes to show that insurers are willing to write policies covering over 60% income replacement.
Topic Author
United2008
Posts: 151
Joined: Tue Dec 01, 2015 7:01 pm

Re: Employer-sponsored vs separate disability insurance

Post by United2008 »

All useful insight. I think I will keep shopping for an additional policy.
Biglaw Investor
Posts: 137
Joined: Tue Oct 20, 2015 1:08 pm
Location: Brooklyn

Re: Employer-sponsored vs separate disability insurance

Post by Biglaw Investor »

@United2008 - Thanks for posting this thread. Based on your other postings, I see that we both work in BigLaw.

My firm-sponsored disability insurance covers 60% of income and appears to be own-occupation which was a bit surprising to me given what I was expecting to find. The policy pays until I'm 65 after a 180 day elimination period.

After reading through the WCI 6-part Disability Series (http://whitecoatinvestor.com/disability ... roduction/), it seems like my group policy is actually pretty decent and that I would be unlikely to get a substantial individual policy given that insurers don't want to incentivize you to not work. WCI recommends considering a small individual policy with a future purchase option rider in case of a job change in the future (http://whitecoatinvestor.com/disability ... ment-13793).

Would be interested to see what you decide to do.
afan
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Re: Employer-sponsored vs separate disability insurance

Post by afan »

With the exception of docs in training, my limited experience does have insurers capping what they will cover. Depending on what you tell them about coverage through your employer, they may sell you extra insurance, but that does not mean they will pay you 100% or more of your premorbid income. They would be crazy to do that.

That said, it could make sense to overinsure, knowing you do not actually have that much coverage, to preserve insurability if you change jobs. Worth checking, but I think this would mainly be an issue if you went to a small employer. Big companies seem to get all their employees covered.
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Topic Author
United2008
Posts: 151
Joined: Tue Dec 01, 2015 7:01 pm

Re: Employer-sponsored vs separate disability insurance

Post by United2008 »

corplawyer wrote:@United2008 - Thanks for posting this thread. Based on your other postings, I see that we both work in BigLaw.

My firm-sponsored disability insurance covers 60% of income and appears to be own-occupation which was a bit surprising to me given what I was expecting to find. The policy pays until I'm 65 after a 180 day elimination period.

After reading through the WCI 6-part Disability Series (http://whitecoatinvestor.com/disability ... roduction/), it seems like my group policy is actually pretty decent and that I would be unlikely to get a substantial individual policy given that insurers don't want to incentivize you to not work. WCI recommends considering a small individual policy with a future purchase option rider in case of a job change in the future (http://whitecoatinvestor.com/disability ... ment-13793).

Would be interested to see what you decide to do.
Great to see Biglaw folks weighing in. I'm pleased to see a decent Biglaw presence on this board and its great to see so many with the same problems/considerations as I have. Starting to feel like we have our own sub-community here, though perhaps second in size to the docs.

It also sounds like we have rather similar firm-sponsored policies. Is yours through Unum?

I just got my hands on a copy of the full policy and plan to read in the next day or two. I'm leaning towards acquiring a modest supplemental individual policy along the lines of what you say WCI suggests. Need to do a lot more research, however, and it isn't my top priority at the moment. But I will certainly follow up here as I make progress.
Biglaw Investor
Posts: 137
Joined: Tue Oct 20, 2015 1:08 pm
Location: Brooklyn

Re: Employer-sponsored vs separate disability insurance

Post by Biglaw Investor »

United2008 wrote:It also sounds like we have rather similar firm-sponsored policies. Is yours through Unum?

I just got my hands on a copy of the full policy and plan to read in the next day or two. I'm leaning towards acquiring a modest supplemental individual policy along the lines of what you say WCI suggests. Need to do a lot more research, however, and it isn't my top priority at the moment. But I will certainly follow up here as I make progress.
Lawyers seem to be second in size to the docs (or possibly third - there's a pretty big Tech group too), but thankfully the doc/lawyer problems and considerations overlaps a lot. That said, I'm also really pleased to see so many posts lately specific to lawyers (the BigLaw Survivor thread was great).

My policy is indeed through Unum. Perhaps we're both looking at the same "Unum BigLaw Policy". I'm considering the supplemental policy, only because there seems to be some benefit to its portability. I get the impression that docs undergo less job changes than JDs, but I could be wrong.
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