Can You Have Two Disability Insurance Policies? Yes – Here’s Why You Should

A sudden illness or off-the-job injury could affect your ability to work, leaving you to sort out your finances while adjusting to living with a disability. It’s important to have sufficient income protection with long-term disability insurance. If you’re relying on employer-sponsored coverage, you might be underinsured and wondering, “Can I have two disability insurance policies?” 

The short answer is yes. 

Having two disability insurance policies is common, particularly when supplementing group disability coverage. But you don’t want to sign up for multiple disability insurance policies arbitrarily. Here’s what you need to know about having two disability insurance policies.

Can I have two disability insurance policies?

Long-term disability plans are designed to replace a portion of your income if you can’t work for an extended period of time due to a disabling illness or injury. It generally pays up to 60% of your pre-disability income. These benefit payments provide financial security until you can either return to work or reach the end of your policy’s benefit period.

High-income professionals with large student debt balances and specialized training need more than the standard group policy provided by many employers. Group policies often have limited benefits along with a weak definition of disability, making it difficult for policyholders to file a disability claim.

Therefore, you might consider having two disability insurance policies to increase your overall payout or to protect your medical or dental specialty income.

Related: International Disability Insurance: What to Expect From Your Coverage While Abroad

Scenarios where having two disability insurance policies might make sense

Long-term disability coverage isn’t a one-size-fits-all financial product. Yet, you might have little to no control over your policy, depending on where you get your disability coverage. In some circumstances, you might need to explore having two disability insurance policies to enhance your coverage.

Scenario 1: You only have disability insurance coverage through work

Employer-sponsored group disability insurance usually comes at little or no cost. It’s easy to sign up for and offers at least a basic level of income protection. But many group policies have a maximum monthly benefit that can fall short of what’s needed.

For example, your group coverage might max out at $10,000 per month. In which case, you might be underinsured in terms of your payout if you make more than $200,000.

Additionally, if your employer covers the cost of your policy, your disability benefits are considered taxable income. Therefore, your actual benefits could be significantly less.

A supplemental individual policy can fill the gap by providing additional disability income. Plus, your disability payments will be tax-free since you’ll pay for the policy with after-tax dollars — which means you’ll get to keep the full amount when you need it the most.

Scenario 2: You need to protect your specialty income

Most long-term disability insurance policies come with a standard any-occupation definition of disability. You’ll need to prove that your injury or illness prevents you from working. That includes the inability to work a desk job or other profession outside your wheelhouse. But an individually-purchased supplemental policy can provide you with own-occupation coverage.

A true own-occupation definition of disability provides coverage for your specific specialty. As a bonus, it continues to provide monthly benefits even if you decide to work in another field.

Let’s say you’re a trauma surgeon with an own-occupation policy, and you have a freak accident that damages your right hand. Your injury sidelines you from the surgical team indefinitely. Although this is devastating to your career, it doesn’t have to be detrimental to your finances.

Because you have own-occupation coverage, you’ll receive a monthly payout based on your inability to perform the “essential duties” of a trauma surgeon. But you can choose to work in another medical field or pivot to an entirely different profession without losing your disability insurance benefits.

In comparison, it’ll be difficult to file a claim if your existing coverage has a weak definition of disability (i.e., any-occupation coverage) because plenty of jobs don’t require the absolute precision of having a steady hand as a surgeon.

Scenario 3: Your salary has increased

You might need a second disability insurance policy if you're making a lot more than you were when you purchased your first policy. 

For example, let’s say you bought a policy as a resident with a $5,000 benefit. Now that you’re further into your career, you need additional coverage to match your salary. But you didn’t originally opt for a future increase option rider. In this case, you might benefit from a supplemental policy to stack your benefit payout for more income protection.

If your salary has increased significantly, it’s worth revisiting your existing policy to determine how best to maintain sufficient coverage.

Scenario 4: Your existing coverage doesn’t cover your necessities

How much disability insurance you need depends on your financial situation and individual preferences. At a minimum, you should carry enough disability income insurance to cover your fixed expenses and family necessities. If your policy doesn’t reflect your current budget, a supplemental policy can provide a larger income replacement payout.

Additionally, the maximum benefit may or may not be enough, depending on your income and your financial situation.

For example, most insurance companies allow a maximum monthly benefit of $15,000 to $30,000. But depending on your specialty and other individual factors (e.g., age, state residence, etc.), you might be able to find a policy with a higher payout.

For most people, the maximum benefit with an individual policy provides ample opportunity to replace their take-home pay and cover the essentials. That said, you might need multiple individual disability policies if your income exceeds $1 million. In this case, you definitely want to talk strategy with an experienced insurance broker.

Scenario 5: You prefer more customized coverage

If you have a regular run-of-the-mill disability policy with your employer, you can find more comprehensive coverage with a supplemental individual policy.

Individual disability insurance plans provide more flexibility allowing you to tailor your policy to meet your financial needs. You’ll have control over your definition of disability, benefit amount and monthly premiums. But you’ll also be able to customize your policy by choosing disability insurance riders and making policy decisions that match your risk tolerance.

For example, you can choose a shorter or longer benefit period and an elimination period. You can also opt for riders that make sense for you, such as a future increase option, catastrophic benefits, residual or partial disability benefits, cost-of-living adjustment (COLA) and more.

Is having two disability insurance policies right for you?

Here’s what to consider before taking out multiple disability policies:

• How much coverage do you need? Look at your current and future income needs in the event of a qualifying disability. Consider your current budget, sources of income and potential changes to your spending.
• Is your existing coverage employer-paid? If it is, your disability benefits will be reduced due to taxes. Additionally, your benefits might be limited and your policy might have a strict definition of disability.
• What does your current policy cover? Do you have own-occupation coverage? What disability insurance riders are included? Review any exclusions or limitations that could impact your benefits.
• What is your monthly budget? Individual disability policies can be expensive, but you can reduce your premiums by tweaking the details of your policy. You can also find better pricing by working with a knowledgeable insurance broker with access to the best discounts.

If your current policy is lacking, it might make sense to have two disability insurance policies. SLP Insurance can help assess your situation and find a supplemental policy to fill coverage gaps at an affordable rate. Fill out the quote form below to get started!