Workplace Disability Insurance may not provide enough income
July 31, 2020
What can you do to maximize your benefits if you become disabled?
Many employers offer short-term and long-term disability insurance in their benefits packages. Short-term disability may last up to two years and generally begins quickly – about two weeks – after the disability. Long-term disability can last from a few years to age 65 or your Social Security full retirement age. (See our article How Long is the Long in your Long Term Disability?) However, it is not a dollar for dollar compensation of lost income. Most long-term disability policies pay around 60% of lost income, and often employers pay the premium but not the taxes.
If you are lucky enough to receive Social Security Disability Insurance (SSDI) benefits, the insurance carrier will seek to be reimbursed the amount of SSDI monies you received. (See our article The interplay of long-term disability and Social Security Disability insurances).
The Council for Disability Awareness lists the most common disability insurance riders available to most workers. They include:
Residual Disability Benefit
Normally, if you return to work, you lose your long-term disability benefits. A Residual Disability Benefit allows you to return to work part-time and supplements your lost earnings. So, if you lose 40% of pre-disability income, you’ll receive 40% of your total base disability benefit.
Cost of Living Adjustment (COLA)
A COLA rider adjusts your monthly income so that your benefits keep up with inflation.
Future Increase Option (FIO)
Most people’s wages increase as they progress in their career. An FIO allows the insured to increase disability income protection without the normally required medical exam to show medical insurability. So, if you currently make $25,000, with an FIO, you can buy a rider that insures a higher income amount.
Automatic Benefit Enhancement (ABE)
If you receive annual increases, such as raises or bonuses, an ABE aligns your disability benefit with standard annual income increases. Keep in mind that your premium will increase as well though.
“Own Occupation” Total Disability
This rider covers you for when you cannot work in your current or “own” occupation. May Long-term insurances and Social Security Disability Insurance are only available when you cannot work in ANY occupation.
The best time to look at long-term insurance rider options is before you become disabled. You may want to consult with an insurance broker. Should you become disabled and decide to apply for Social Security Disability, working with an experienced SSDI attorney, like those at Rothman Gordon, can help coordinate your insurance benefits with your SSDI benefits.