Many employers provide long-term disability insurance to workers. Employers usually fully pay for such policies. Providing long-term disability benefits is not a legal requirement, but companies consider doing so represents a strong lure that attracts prospective employees.
Similar to individual long-term disability insurance policies, the ones provided by an employer may cover 40% to 60% of your income. Still, you wonder even though you have long-term disability coverage through work, is it a good idea to purchase an individual policy? There are some matters to consider.
A job change, taxes and coverage caps can affect you
According to the Society for Human Resource Management’s 2019 Employee Benefits report, 71 percent of all employers offer group long-term disability insurance plans for employees who have chronic illnesses or serious injuries. With such policies, though, read the fine print to determine the coverage amount as well as terms. Learning more about the work-sponsored policy may lead you to consider whether to purchase an individual long-term disability insurance policy.
Here are some reasons to consider adding an individual long-term policy:
- You change jobs. It is likely that once you leave a company, the company-sponsored long-term disability insurance coverage ends. And the possibility exists that your new employer does not offer similar coverage.
- The insurance policy through work may not be enough. In many cases, employers do not pay federal and state income taxes on the disability income it provides. That means you are responsible for paying the taxes. The result: While your group policy covers 60% of your income, as much as 30% of that could be eaten away by taxes you pay.
- A cap on benefit amounts on your group policy. The result: Employees who earn higher wages likely would be under-insured.
Long-term disability insurance is a good and necessary thing for many workers. But remember, even though your employer offers such insurance, you still may have to purchase a policy of your own.