How to choose your 2009 employee benefits: Part 4

What are the signs of autumn? Falling leaves, frosty mornings, and Open Enrollment. In this multi-part series, we'll help you sift through the choices among your employee benefits.

Part 4: Disability insurance

Disability insurance provides you with income if you're unable to work. If your employer offers it—about a third do—take advantage of this vital benefit.

"Disability is more likely to occur than death in any one year," says Bill Baldwin, president of Pillar Financial Advisors in Waltham, Mass. The probability that a professional, executive, or white-collar (nonmedical) worker will be disabled for 90 days or longer sometime between the ages of 35 and 65 is 27 percent for men and 31 percent for women, according to Milliman, a Seattle consulting firm.

Short-term disability coverage provides employees who can't work with a percentage of predisability income (typically 60 percent) once their sick leave is used up. This coverage may not last more than six months. Generally, group long-term disability benefits start when short-term benefits are exhausted and continue anywhere from five years to life. Those benefits also replace about 60 percent of salary.

In some cases, group disability coverage is fully paid for by employers. In others, employers fund a basic plan and employees can buy supplemental coverage. "Sometimes the employer-provided coverage isn't enough to cover family needs when long-term disability strikes," says Ginny Stanley, a principal at REDW Stanley Financial Advisors in Albuquerque.

What to do: If you decide you need more disability insurance, you can buy group coverage offered by your employer or look outside your company for an individual policy. But if you're older or your health isn't up to par, you might not be able to find an affordable individual policy.

On the other hand, someone in good health might do better looking beyond the group coverage to the individual market for supplemental disability coverage. A policy you purchase on your own may not only be more liberal in approving benefits but will also be portable, so you can retain the coverage if you change jobs.

Either way, if you pay the premiums with after-tax dollars, any disability benefits you receive won't be taxed. "This can help you get more coverage," says Baldwin, "because insurers generally won't provide more than 60 percent of earnings." That is, someone earning $100,000 might be able to buy coverage that pays up to $60,000 a year. If you get that coverage through employer-paid premiums, you'll net only $45,000 or so after taxes. Buying coverage with after-tax dollars can deliver untaxed benefits, increasing the amount you'll get to keep.

Learn more about buying disability coverage from this article  from Consumer Reports Money Adviser.

Comments

[Nancy Cavey]

Employer sponsored long term disability plans do not provide you with the peace of mind you might think. Many employer plans have limited benefits for conditions like fibromyalgia, chronic fatigue and psychiatric conditions. Even worse, most of these policies reduce the amount of your long term disability benefits if you get Social Security Disability.

Employer funded long term disability policy disputes are resolved under the ERISA act which allows the carrier the discretion to deny your claim for long term disability benefits. You have not right to a trial and can't call witness in support of your claim.

I have written a consumer guide "Robbed of Your Peace of Mind" for Human Resource Directors and any employee thinking about buying an employer sponsored long term disability policy. This book covers the policy language you DO NOT want to see in any long term disability policy and the way long term disability carriers deny valid claim.

If you can, you are better off buying a private disability policy.

Nancy Cavey
caveylaw.com