Group disability insurance is a key benefit offered by some companies to their full-time employees. It helps protect a portion of your income if you get hurt or sick and can’t work over a long period of time. And it’s a key benefit, because your lifetime earning potential is critical to your financial health and long-term goals.
Most often, companies that provide coverage automatically opt their employees into their group disability policies when they’re hired, regardless of health. And while this makes it a simple, hassle-free form of coverage, it may not be enough if you need to rely on those benefits in the future. Here’s why.
IT WON’T COVER ALL YOUR INCOME
Group disability insurance policies won’t replace your entire paycheck. While some companies may offer a larger benefit, most group disability insurance plans typically replace only 50 to 60 percent of your income. That’s a sizable pay cut, but it gets a little deeper.
IT MAY ALSO BE TAXABLE
Now, take that 40 to 50 percent pay cut and take a little more off the top. That’s because the benefit you receive through a group disability insurance policy may also be taxable like income. After taxes that’s a sizable reduction to your monthly income, which can potentially knock you off track from reaching your financial goals.
YOU CAN SUPPLEMENT COVERAGE
The good news is that you can supplement your group disability insurance coverage with your own disability insurance policy. A personal disability policy will supplement the benefit you receive through your group plan, allowing you to replace a larger share of your income if you become disabled. Unless you can afford a 40 to 50 percent pay cut if you become sick and can’t work, you may want to consider closing the income gap with an individual policy.
According to the Social Security Administration, there’s a one in four chance that a 20-year-old today will become disabled at some point during his or her career. Getting the right amount of coverage in place to help protect your income today will breed confidence that your financial plan will remain on track even if life throws you a curveball.
A financial advisor can help you determine the right amount, and mix, of coverage to protect your income over a lifetime.