Worried About Disability Coverage Through Work? Get Supplemental Disability Insurance

Many employers offer basic disability insurance coverage. But due to its limitations, such as having a strict definition of disability and capped benefits, employer-sponsored disability coverage usually isn’t enough to cover the needs of high-income earners. That’s where supplemental disability insurance comes in.

Do you need supplemental disability insurance?

If you get long-term disability insurance (LTD) through your work, it’s typically a no-cost (or low-cost) benefit with maybe a line or two explanation in your employee benefits brochure. The problem is that most employer-sponsored group disability plans only replace 40% to 60% of your income, which might also include a cap on benefits (e.g., $5,000 or $10,000 per month). 

Additionally, disability income from this type of policy is usually taxable if you aren’t paying the premium yourself.

Let’s say you earn $150,000 and have group coverage that protects 60% of your salary. You might assume you’d receive $7,500 of monthly disability income to cover your expenses if you experience a disabling injury or illness. But if your employer picks up the tab for premiums, your disability income will be taxable. You could be looking at a disability benefit closer to 45% of your income — which in this case, comes out to around $5,625. 

That’s a big difference in disability benefits when you’re trying to pay for your mortgage, cars and other living expenses while not being able to work and earn your normal level of income.

The problem becomes even more apparent for high-income earners whose group disability insurance benefits are capped. Pretend you earn $300,000 and have a group LTD policy that pays 60% of your base salary, but it includes a monthly maximum benefit of $10,000. If there was no cap on benefits, you’d receive a monthly benefit amount of $15,000. But since it’s capped at $10,000, your group coverage only protects about 40% of your income — which gets slashed even more if it’s subject to income taxes.

How does supplemental disability insurance work?

Supplemental disability income insurance adds more protection to a disability insurance policy you already have. It replaces a percentage of your income minus other existing disability insurance.

Supplemental coverage is available via an individual policy that you purchase from a private insurance company. Individual disability insurance allows you to:

1. Fill the gap between what you’re currently bringing home and the limited benefits you might receive from your employer-sponsored disability coverage.
2. Receive tax-free disability insurance benefits since you’ll pay premiums with after-tax dollars.
3. Choose a stronger definition of disability that accounts for the unique risks of your profession.
4. Further tailor the policy to fit your needs with a variety of built-in features and optional policy riders, such as a future purchase option and partial disability benefits.
5. Maintain portable coverage with no changes to your benefits or premiums if you change employers.

If you’re solely relying on your group coverage through work, it might be time to consider a supplemental disability insurance policy to better protect your specialty income.

What to consider when buying supplemental disability insurance

A supplemental disability insurance policy can benefit physicians and other high income-earners who want to protect a greater percentage of their income, bonuses or other incentives. If you have specialized training, it’s arguably a necessity considering group coverage usually comes with a narrow definition of disability that makes it a lot more difficult to file a disability claim.

When shopping around for a supplemental policy, consider the following:

• How much income protection do you need overall? Look at your finances from a holistic perspective. What are your fixed monthly expenses? What lifestyle changes can be made if you become disabled? Does your family have ongoing medical bills? Do you have a spouse who can keep the household finances afloat without your full income? Factor in all sources of income, savings, expenses and lifestyle preferences to help determine how much disability insurance you need.
• What is your existing policy’s definition of disability? Group disability policies usually provide an any-occupation definition of disability. This can make it more difficult to qualify for a total disability because it’s based on your ability to work in any suitable job, even if it’s a lower-paying gig. In comparison, an own-occupation definition of disability protects doctors, dentists and other professionals with specialized training because it specifically applies to the substantial duties of your specialty. Depending on the policy, you might even be able to work in another field while collecting disability income with specialty-specific coverage.
• Does your work coverage provide adequate protection to cover your monthly expenses? At its most basic level, supplemental disability insurance comes down to how much existing coverage you have versus how much you need to cover your fixed expenses (plus an additional cushion for the unexpected).

If you can’t survive on the monthly benefit from your employer group disability plan, then a supplemental disability insurance policy can provide the additional coverage you need.

How much does supplemental disability insurance cost?

The cost of supplemental disability insurance varies based on several primary factors, including your age, gender, occupation, health and certain lifestyle choices (e.g., smoking and high-risk hobbies). However, you can generally expect around 2% to 4% of your income for specialty-specific disability coverage.

The policy structure will also impact costs. This includes everything from the amount of coverage you need to how long you’ll receive benefits (e.g., benefit period) and any optional add-ons for more comprehensive coverage.

How to get a bigger safety net with supplemental disability insurance

Disability insurance policies aren’t as straightforward as the short paragraph included in your employee benefits package. While some coverage is better than none, you don’t want to be caught devastatingly surprised when it comes time to file a disability claim.

SLP Insurance works with professions across the board to find supplemental disability insurance that is specialty-specific and affordable. Our team will look at your existing coverage to determine where you might need additional income protection to ensure your specialty income is adequately covered.

We search the “Big 5” insurance carriers to tailor a policy to fit your needs while taking advantage of the best discounts. If we know of a better deal, we’ll refer you to another broker. Fill out the form below to get started.