disability insurance percentage of income covered?
my long term disability income insurance policy is set at 60% of my salary covering through age 65 I also have a short term policy that covers me until that 180 days is up and the long term kicks in, does this sound sufficient or should I get an life insurance policy with a monthly disability rider which pays an income as well that my insurance agent is trying to sell me to support my long term policy.. I dont make enough income to qualify for any of my insurance agents supplemental long term disability plans to help with the long term plan I have through work thats why he suggested the life insurance with the monthly disability rider
Public Comments
- IT DEPENDS
- Ok, 60 - 70% is normal. HOWEVER your question is, is this sufficient. So the answer is, I have NO idea!! Go over your budget. Figure out what your expenses would be (don't forget to add for medical insurance) if you were disabled. Consider that you might ALSO be collecting SSDI benefits, in addition to the private policy. If the goal is additional disability benefits, life insurance is NOT the way to go. See if you can endorse your current policy to 70%. No one goes over 70% - but that income isn't taxable, so you don't pay any income tax on it (which is why no one goes over 70% - so you don't make more money on disability than you did when you were working).
- Your state may have a coordination of benefits, meaning that if you have more than one disability policy, both won't be allowed to pay full benefits. 60 is standard, however, realize (I think) that no one will be taking deductions from it (i.e. taxes, etc). so it's worth more than you think. I didn't know the disability rider provides income on a life insurance policy. My experience has been that, that rider keeps your life insurance coverage intact, in case you become disabled. Your agent may be trying to sell you a different kind of disability policy which will have no effect on your life insurance.
- It depends on whether the coverage you have now offers benefits that are taxable, and it is important that you find out this information. If the policy is owned by a corporation, or if it's an employee benefit, it probably is. If your policy is an individual policy that you pay for on an after-tax basis, then your benefits are probably tax-free. So, if your benefits are taxable, keep in mind that you are probably only protecting less than half of your income. On the other hand, if they are not taxable, then you still have only 60% of your income after a disability. You would need to ask yourself if you could live your current life on only 60% of your income. My experience, though, is that I have never met anyone who could afford to take a 40% pay cut. Most insurance companies will not insure more than 80% of your income (taking into consideration taxation). While this may sound high, remember that expenses usually go up during a disability, not down. Medical costs alone are sure to go up, even if you keep your employer's medical plan through COBRA (remember that your employer now pays a portion of that premium, and you'll pay 100% of it through COBRA). And if your spouse works, she may need to take time off of work to care for you. So if you can afford more coverage, and there is an insurance company that will insure you, go for it. I recommend that you look into additional disability income protection, and perhaps even look into long-term care insurance. As far as the "disability rider" that you mention, that sounds like it deals with your life insurance. If so, the only thing that that benefit will do is pay for your life insurance premium, not pay you a monthly income.
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- Disability insurance isn't designed to replace 100% of your income. What would be the incentive to return to work? The 60% -70% range is an industry standard. It sounds as if your existing coverage is group insurance. If so, there could be a benefit integration clause meaning the benefit you receive from that policy is offset by any other income you receive.
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