How Safe is Your Income
Why do you work? I’m sure it’s because you absolutely love your job and would do it for free if they asked. Hopefully, it’s some of that, but most likely you’re not independently wealthy and you work for the paycheck. Paychecks are great! There is nothing like the first and the fifteenth.
What if those paychecks stopped coming in? We all have bills that come in every month whether it’s your mortgage or rent payment, your electric bill, car loan or your grocery bill. How would you pay them? How long would your savings last?
Luckily, there are companies out there that provide group disability insurance for their employees. Most employees fail to take the time to truly understand how the policy works and what they would receive for a benefit. You’re probably nodding your head as you read this. Group disability insurance covers off the job accidents (think car accident or falling off a ladder at home), an illness (something serious like cancer or less serious like a routine surgery) or even maternity leave.
There are three major shortcomings with group policies:
1) Your Benefit is Taxable:
Most employers hate paying taxes and will look to take every possible deduction. Group disability insurance qualifies as a tax deductible business expense. What does that mean to you? Well, if an employer takes a deduction for the insurance premiums, then the benefits that you receive will be taxable as income. Most disability policies will pay 60% of your gross income. Factor in the taxes from your benefit and now you are looking at earning closer to 40% of your gross wages. How would you be able to handle a 60% pay cut?
2) Own Occupation
If you went to college or had to acquire a certain set of skills to obtain your job, then this section is for you. Most group long term disability policies have a definition of whether or not you qualify for a claim. The two main definitions are Any Occupation and Own Occupation. Any occupation means if you can get any other job, then you won’t qualify for the benefit. If it’s an Own Occupation definition, then if you can’t perform your specific job then the insurance carrier will pay your benefit. Group policies will cover you under the Own Occupation definition for two years, then it’s time to get a job as a Walmart greeter.
3) Salary Limits
Group disability plans will cap the benefit an employee can earn usually around $1,000 a week for short term disability and $5,000 a month for long term disability. If you make $100,000 or more a year, then you are receiving less than 60% of your salary.
Group disability can help provide a good base for your financial plan and often times it makes sense to pair a group disability policy with a supplemental disability policy. A supplemental policy can help fill in the financial gaps left by a group policy and provide you with the proper amount of protection when you need it most.