For many employees, this question is thought to be a “no brainer”. After all, most of your other benefits are being handled through your employer, such as retirement and health insurance, why not disability? It’s also generally presumed that an employe plan will be less expensive than what you can get on your own. That may be true, but it hardly means that the policy will be the right one for you.
So should you buy disability insurance through work?
Don’t Buy It – But Take it if the Employer is Paying For It
If your employer is offering you a benefit at no cost to you, then you should certainly sign up for it. After all, it’s no money out of your pocket, so it’s a benefit in the truest sense.
But if you are offered to buy the policy, that’s another story entirely. Probably the only time you should consider that option is if you have been unable to get a disability insurance policy on your own. For one thing, the policy may not be as inexpensive just because it is being offered by your employer.
But an even bigger consideration is that when it comes to disability insurance – just like every other financial endeavor – it pays to diversify. Take the policy offered by your employer if you don’t have to pay for it, but diversify by adding your own policy for additional coverage.
There are a number of reasons why this will be in your best interest.
Employer Sponsored Disability Insurance is NOT Transferable
No matter how secure you are feeling about your job right now, most jobs eventually come to an end. When they do, it’s often totally unexpected, and almost always highly inconvenient.
It’s not just the loss of income that results from the loss of a job, but also the loss of benefits. That includes disability insurance. Once you sever the ties with your current employer, you will lose your disability insurance entirely.
This is where we get back to the concept of diversifying your disability coverage. If you have both a free policy through your employer, and your own private policy, you’ll still have a plan in force in the event your job ends and you lose your employer disability coverage.
This will be even more important if the loss of your job is followed by a prolonged period of unemployment. Should you sustain a disabling injury or illness while you are unemployed, you’ll be in the worst position imaginable.
Your Employer Sponsored Disability Plan Has Stiff Limits
Like the fine print in a real estate contract, most people pay very little attention to the details of employer-sponsored benefits (with the possible exception of employer-sponsored retirement plans). They simply assume that they are covered, and all is well.
But that’s hardly true. Most employer paid disability policies will only cover a maximum of 60% of your salary. There will also be dollar threshold, such as $5,000 per month, which will represent the cap on your disability benefits. If you are a higher income employee, this may be totally inadequate. And worse, the calculation may be based entirely on your base salary, and not on any additional income you receive, such as commissions or bonuses.
Take an Employer Paid Plan – Then Buy Your Own
For all the reasons we discussed so far, you should take an employer plan to the degree that the employer pays the premium. But you should supplement that plan with your own private disability insurance policy.
That will not only provide you with additional disability benefits over and above what is offered by your employer, but it will also be totally portable. In the event you leave your job, you’ll still have your private policy available. That will be especially important if the next job you go to does not offer disability insurance coverage, or if you should decide to become self-employed.
With Your Own Plan You Can Know Exactly What the Policy Contains
There’s yet another benefit to having your own disability insurance policy. When you enter an employer sponsored policy, you’re basically taking the plan that your employer has negotiated. The details are relatively unimportant, since you have no say in changing any of them.
With a private policy however, you will have absolute control over the policy provisions, and you will be able to customize them in a way that will most fit your needs.
This is more important than it sounds on the surface. Like most other insurance policies, a disability policy will contain strict definitions that will define disability. For example, a policy may pay benefits only if you are unable to work in any capacity. Others may pay benefits based on the fact that you are unable to work in your current capacity. This is a much more relaxed definition, and one that you can include in your own policy.
Disability insurance is much more important than most people understand. You understand the need to insure so many other areas of your life, but it’s also important that you insure your income, and disability insurance is one of the best ways to do that.
