Supplemental Long-Term Disability

Good Day,

I have disability insurance through my employer which covers 65% of my income. As is typical, this is taxable. I have casually looked on the internet for disability insurance, but the relatively few companies that seem to provided it don't seem to have just supplemental insurance. I am looking for something to cover the 35% or so of my income that would not be replaced by my workplace insurance. Where should I look? Am I misunderstanding the whole concept?

Thanks,

Mike

Reply to
Mike
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Normally insurers will *not* let you insure more than 60-70% of your income.

The reason is they do not want you to be disincentivised to go back to work. Analagously, you can't insure possessions for more than they are worth (it would create 'moral hazard' ie an incentive to break things).

If you have insurance that adds up to more than that level, the insurers have normally inserted a clause allowing them to lower the amount they pay you. Note that the arguments between insurers over this (who pays what) can delay your claim.

If you have employer provided insurance, this is normally far cheaper than individual insurance from the LTD providers (UNUM used to be a big name in this area). *however* it is (not sure about the US situation) taxable when you receive benefits (whereas individually purchased insurance, the benefit is not) . *and* it usually covers you less well.

For most people, I usually suggest (note: I am not a qualified financial planner, nor a US resident- caveat emptor) the following general principles:

- your employer's insurance is probably the best solution if available

- if you anticipate becoming self employed *or* you have some reason to suspect that at some time in the future you will have a disability (but failure to disclose is the main reason for disallowing benefits) then you can take out an individual LTD contract. They cost the earth (good ones) and you need a gold plated one, with a very high quality insurer (you will need to do your homework on all this-- a lot of insurers pulled out of the market when LTD claims soared due to 'middle class diseases' like depression and back pain). There is no point not having a good individual contract (eg 'own occupation' definition of disability, not 'any occupation'-- the usual insurance term, from memory, is 'class 5') because the insurance company will do anything it can to squirm out of paying you (this is why you need an insurer with a good rep, and a blue chip balance sheet).

Rates rise as you get older, so the sooner you take out a contract, the lower the rate. Obviously if you develop a potentially disabling condition in the meantime, it will be difficult or impossible to get insured.

- trade or professional associations often offer LTD insurance. This can be a lot cheaper than an individual contract.

- remember you won't be paying tax on this income (UK law, not sure about US) if you paid the premium for the contract yourself. So your actual 'replacement' income would be only about 50% of your gross salaried income to be in the same place financially.

- you need an inflation clause on the benefit. This is *long term* insurance. If you are disabled for say, 15 years, and inflation is

3%, your buying power has fallen by 36%.

- the one thing you can, and should do, to lower the cost of LTD insurance, is *get a long deductible period*. There is a big difference in premium between a 30 day deductible, and a 180 day deductible (not so much after that). In effect, you will be self insuring for the first 6 months, and you have to have the financial werewithal to do that (how many of us have 6 months of living expenses in ready cash or liquid investments?).

But you can save yourself a fortune by doing this (10-20% of the cost of policy, per month, times 30 years say, is 5 years of premiums).

In my experience, most people have far too little LTD insurance, and far too much life insurance. Unsurprisingly, the latter is an easy sale, the former a complex sale. And most of us find it easier to contemplate being dead, than sitting round the home all day depressed and driving our partner nuts, whilst in constant pain from a bad back.

LET ME SAY AGAIN: I am not credentialed in this area, nor do I live in the US of A. So you will need to do your own research and get professional advice.

Reply to
darkness39

Thanks for your insights. You state that I cannot insure my possessions for more than they are worth. I'm not looking to insure myself against more than my income. Just the same as my income. My employer provides my long-term disability insurance and so the 65% of my income that would be replaced by that would be taxable, probably bringing my net income to 50% or less, then.

Given that, I would be looking for a policy to cover the 30-50% of my income not replaced by the LT disability provided by my employer. I keep hearing about how under-insured most people are for disability so it surprises me there is not more chatter about this issue.

======================================= MODERATOR'S COMMENT: Please trim the post to which you are responding. "Trim" means that except for a FEW lines to add context, the previous post is deleted.

Reply to
Mike

Your normal income is taxed also, probably at a higher rate than the disability income. So, your net (after tax) disability income could be 70% or more of your net normal income.

The other aspect to keep in mind is that when unemployed, one's commute expenses and other job-related expenses are often greatly reduced.

Reply to
John Richards

At least in the private market, when I was buying this cover, the practical limit was about 60% of your income, whether from your employer or a private policy.

Perhaps my analogy was a bad one, but the point from the insurer's point of view was they did *not* want you to be incentivised to stay disabled.

Most people have little or no insurance *at all* for disability.

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Reply to
darkness39

" >

You missed the point. To do as you ask would give you 100% of income TAX FREE.

There would be NO incentive to go back to work ! ! ! ! ! ! ! !

Insurance companies are NOT DUMB.

Cal Lester CLU

Reply to
Cal

On Sun, 28 Jan 2007 11:06:18 -0600, Mike wrote: I am looking for something to cover the 35%

I've seen long term care insurance used in a small number of cases where income was high enough and LTD insufficient. Premiums were not an issue; the coverage was the important item. If you're on long term disability then maybe you can't do two of six activities of daily living. For what it's worth.

Reply to
Chris Fasano

FWIW ... For disability, I wouldn't waste the money on any insurance other than my "group" insurance. Why's that? A friends mom had an unfortunate accident ... she was filling up her car and another driver lost control and pinned her between the two cars. That was over 2 years ago and she is still in litigation ... the company is still stalling, still playing dirty tricks (looks a lot like they hired someone to open up the gate and let her dog loose hoping to get pictures of her out of her wheelchair ... the dog was run down and killed), still threatening this and that, offering a ridiculously low settlement ... but basically dragging it out as long as they legally can. Sure she has a lawyer ... but there's only so much can be done (my understanding). Unfortunately she did not have group insurance so she is basically on her own.

Reply to
bowgus

There's no question that some claimants take the system for a ride, and conversely insurance companies play hardball. Your case sounds extreme, but not at all unlikely.

I don't know how one would assess the ethicality of insurance companies/ willingness to pay. I know professional groups (like lawyers) have access to schemes which seem to provide good coverage (professionals have relatively low disability rates-- if you self identify by what you do, you are less likely to stop practising).

Reply to
darkness39

I work in a large hospital where I am a systems programmer. The LT disability insurance provided to me covers 65% of my income. The LT for physicians covers 85% of theirs. What is the assumption? That if a physician needs to use the insurance than he/she i REALLY disabled versus just faking like the rest of us?

Another point: does Social Security cover disability when workplace provided LT disability is not sufficient?

Reply to
Mike

large hospital where I am a systems programmer. The LT

The assumption is that doctors are disabled less, and for less time, than other types of workers. Probably the actuarial loss ratio bears this out. Also physicians are the type of people who tend to have big personal cost bases (big houses, kids in private school and colleges, etc.) so they may have more incentive to get back to work. A final factor is that insurers compete quite hard to get some professional groups because 1). their policies are bigger (so more premium income) and 2). there are prestige/ business reasons to be a dominant provider to those groups.

There is a lot of research that top managers feel less stressed and more in control of their jobs than middle managers and have lower absenteeism (work done on the British civil service, but substantiated in other areas).

I'm not up on the US rules. Basically as I understand it, SS disability is the leading form of disability income in the US (other than VA). Also different states have Worker's Compensation but they are trying to crack down on it (employers pay for it, so it is a political hot potato). However it doesn't pay a whole heck of a lot I don't think. I don't know if it pays out at the same time as a private sector plan-- it might not be advantageous to apply for it as it will significantly discount your pension income from social security.

It's worth talking to a provider like UNUM about a policy-- you might well be self employed some day. Also you may be eligible for a policy through a professional association, university alumni benefits, etc.

Whatever you do, take this stuff out *before* you take up sky diving or scuba diving or flying a light plane as a hobby ;-).

Reply to
darkness39

Of course we don't know the all the aspects of the situation, but it is short-sighted to say that because of one bad apple, the entire tree should be cut down. Maybe we should cease going to Doctors because someone's got a malpractice story to tell.

To the OP, look for high comdex ratings and reputable/well known companies. You can also review a companies complaint history. Any decent inurance carrier can provide you with this information on both their company and others.

No matter the company, it is unlikely that you will be able to attain

100% income coverage (income tax free or not). Most disability carriers also "rate" your job (5A, 4A, 3A, etc, etc.) Certain job classes are entitled to more coverage than others. Some job classes are completely uninsurable no matter what your health status. If you are able to pick-up more coverage, the own-occupation rider is definitely worth taking a look at (as someone already said).

Lastly, LTC may be a viable alternative. It has its limitations in that it will not cover disability unless you require extended health care. However, thanks to medical advancements many of us are living through major health problems that should have killed us.

Reply to
kastnna

:-) I have a friend who is a visiting GI surgeon from a developing country. As a visiting fellow he did not have the same benefits as a regular physician. At 39 he had a heart attack and massive stroke that left him alive, but unable to read and therefore practice medicine. He has no disability insurance at all but does have life insurance. He is much better now, but still unable to read. I don't want to end up in a situation where I would be better off dead than disabled.

Reply to
Mike
,

Then you are obviously recommending "throwing out the baby with the bathwater" (if one company is doing a bad job, then boycott ALL companies)

Cal Lester CLU

Reply to
Cal

Well no. I'm saying go with the group disability coverage of 65%, and think twice about paying for any additional coverage as an individual, because as an individual, it will likely be very very difficult to collect. If a person were really concerned, there are other ways to plan for contingencies ... like go for that promotion and/or pay raise ... 65% of $50K is $32.5K and 65% of $100K is $65K ... too easy. Or ... well, there are other very positive ways to better oneself financially than to pay into ... an insurance lottery where winning is imo for losers :-)

Reply to
bowgus

a) you ignore the possibility of NOT staying with that company If you quit or are downsized, the new company MIGHT not offer ANY disability coverage.

b) it has been my experience of over 40 years, that MOST legitimate claims are paid. If it appears that it is going to be a LONG claim, the company ussualy will offer some kind of cash settelment.

Cal Lester CLU

Reply to
Cal

I'll try again ... Mike (the OP) wants to supplement his 65%. I'm saying forget it ... stick with the 65% and be thankful.

Reply to
bowgus

Bowgus,

For the time being I'll take it and be thankful. I still think it's ironic to be better dead than disabled....

Reply to
Mike

Easy, I am disabled.

Reply to
bowgus

I don't think the OP meant to be offensive but your point is well made to all of us (who tend to be flip, at least, like myself).

His sentence makes sense in a *financial* context not a quality of life context.

I know people who are disabled who have made good and positive lives for themselves, I also know people who would probably prefer not to be here.

Reply to
darkness39

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