Can't decline employer LTD policy. Should I buy up?

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Tamarind
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Can't decline employer LTD policy. Should I buy up?

Post by Tamarind » Tue Jul 10, 2018 11:09 am

First world problem here. My employer offers group LTD coverage at no cost to me. It's pretty decent as group plans go:

60% income replacement
Own occupation for 2 years, any occupation to full retirement age
Mental health disability only covered for 2 years

My family situation, close relative's medical history, and research suggests I might benefit from a larger true own-occupation policy. This is particularly salient because I currently bring in around 75% of family income.

But I can't buy an individual policy due to the employer coverage.

How do I figure out whether I should:
1) Purchase a buy-up of my employer's group plan to 70% replacement. Cost: $30 annually.
2) Shop for a supplemental individual plan. Cost and benefit unknown.
3) Both
4) Neither. When looking for my next employer, make sure their LTD coverage is not mandatory.

My gut says that $30/ year is really cheap for 10% of salary (and it would be post-tax). But is it cheap if they don't pay out or if purchasing the buy-up further restricts my access to a supplemental individual policy?

mhalley
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Re: Can't decline employer LTD policy. Should I buy up?

Post by mhalley » Tue Jul 10, 2018 11:16 am

Clark Howard recommends using workplace Ltd until salary exceeds 200k, then recommends 3rd party. I don’t know the reasoning behind this.

https://clark.com/insurance/new-advice- ... insurance/

BruDude
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Re: Can't decline employer LTD policy. Should I buy up?

Post by BruDude » Tue Jul 10, 2018 12:41 pm

OP - the amount you can qualify for on a supplemental policy is going to depend on your income. With your employer's coverage being 60% and taxable benefits, you should still qualify for a reasonable amount of coverage on an individual policy. You can include a Future Increase Option rider at additional cost to guarantee the option to buy more coverage in the future regardless of health, which will be important if/when you change employers since the group coverage isn't portable. Principal and Standard also include their future increase benefit at no cost, but it is less flexible than a true FIO rider like the one offered by Guardian/Ohio National/Ameritas.

If the coverage is being offered at no cost, you are not going to be able to opt out of it in all likelihood. However, if you elect the buy-up option, it's going to further limit how much coverage you can buy on an individual policy.


mhalley wrote:
Tue Jul 10, 2018 11:16 am
Clark Howard recommends using workplace Ltd until salary exceeds 200k, then recommends 3rd party. I don’t know the reasoning behind this.

https://clark.com/insurance/new-advice- ... insurance/
I think Clark has generally good financial advice, but advising people to use group LTD until salary exceeds $200k is horrible advice. Group LTD policies have much more limited benefits than individual policies, are not portable between employers, and the definition of disability after the first two years of own occupation coverage usually leaves a lot of gray area in the event of a claim. They also usually do not cover partial disabilities or disabilities that result in a loss of income after returning to work full time, or have extremely limited benefits for these scenarios (usually a max of 6-12 months).
How many people do you know that have stayed with the same employer for 10+ years? In this day and age, the answer is not many.

I am a DI agent so my opinion may be a little biased, but I think it is extremely important to have your own individual DI policy and not rely on employer coverage at all. It's a nice bonus to have at no cost, but an individual policy is going to be far more comprehensive.

mhalley
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Re: Can't decline employer LTD policy. Should I buy up?

Post by mhalley » Tue Jul 10, 2018 1:22 pm

I agree that the 200k cutoff seems odd. I think 3rd part is much better overall.

Blueraidermike
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Re: Can't decline employer LTD policy. Should I buy up?

Post by Blueraidermike » Tue Jul 10, 2018 5:57 pm

I just went on LTD due to cancer, been stage 4 for 6 years and just don't have the energy to handle a travel heavy sales position. Take all this very seriously and understand the plan, if fact, ask your company for the actual Insurance certificate. Lots of details that are not in the summary. For those of us in sales with variable income understand how this impacts your payout. Most plans pay 60% of "covered" earnings up to a certain amount per year.

I actually have a third party policy as someone making more than 200K. My policy from work has a work incentive, so I am getting paid and working about 20 hours a week on the side for the company.

Blueraidermike
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Re: Can't decline employer LTD policy. Should I buy up?

Post by Blueraidermike » Tue Jul 10, 2018 5:58 pm

mhalley wrote:
Tue Jul 10, 2018 11:16 am
Clark Howard recommends using workplace Ltd until salary exceeds 200k, then recommends 3rd party. I don’t know the reasoning behind this.

https://clark.com/insurance/new-advice- ... insurance/
because most plans have a cap. My plan pays 60% up to $14K per month...well I made about $32k per month last year. So I am not close to 60%.

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Tamarind
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Re: Can't decline employer LTD policy. Should I buy up?

Post by Tamarind » Wed Jul 11, 2018 7:04 am

BruDude wrote:
Tue Jul 10, 2018 12:41 pm
OP - the amount you can qualify for on a supplemental policy is going to depend on your income. With your employer's coverage being 60% and taxable benefits, you should still qualify for a reasonable amount of coverage on an individual policy. You can include a Future Increase Option rider at additional cost to guarantee the option to buy more coverage in the future regardless of health, which will be important if/when you change employers since the group coverage isn't portable.
Thank you. I'm shopping for quotes for a supplemental policy now.

How does the percentage limit actually work? What effect does the order of purchase have on that limit?

If I purchase a non-cancellable supplemental policy, use the future increase provision to expand it to the full amount after changing employers, and later find myself with another employer benefit that can't be declined, what happens? The individual policy (now covering 60% of my salary) can't reduce its benefit, right? Even though it's a policy they would not sell me while I was covered by a group plan?

BruDude
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Re: Can't decline employer LTD policy. Should I buy up?

Post by BruDude » Wed Jul 11, 2018 1:28 pm

Tamarind wrote:
Wed Jul 11, 2018 7:04 am
BruDude wrote:
Tue Jul 10, 2018 12:41 pm
OP - the amount you can qualify for on a supplemental policy is going to depend on your income. With your employer's coverage being 60% and taxable benefits, you should still qualify for a reasonable amount of coverage on an individual policy. You can include a Future Increase Option rider at additional cost to guarantee the option to buy more coverage in the future regardless of health, which will be important if/when you change employers since the group coverage isn't portable.
Thank you. I'm shopping for quotes for a supplemental policy now.

How does the percentage limit actually work? What effect does the order of purchase have on that limit?

If I purchase a non-cancellable supplemental policy, use the future increase provision to expand it to the full amount after changing employers, and later find myself with another employer benefit that can't be declined, what happens? The individual policy (now covering 60% of my salary) can't reduce its benefit, right? Even though it's a policy they would not sell me while I was covered by a group plan?
At the time of purchase, the amount you can qualify for will be determined by your income and then partially offset by the group coverage using a formula (each company is slightly different). If any of your income is derived from bonuses or commissions, that income isn't covered by group plans so you'd qualify for a larger amount of individual coverage.

For the scenario you mentioned, let's assume you have a policy with a $5k/month benefit. You leave employer A and join employer B, which doesn't offer any group coverage. Based on your new salary with employer B, let's assume you are able to increase your total benefit to $10k/month. Then 6 months later you leave employer B and join employer C which does offer group coverage. Good news - you still have $10k/month from the individual policy and will be covered under employer C's policy at the same time, so if you become disabled you can collect the $10k/month plus employer C's benefits.

That's one of the benefits of having an individual policy - once the coverage is in force, the insurance company cannot change any terms of the policy. This assumes we are talking about Guaranteed Renewable policies, which is what all of the major DI companies offer.

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Tamarind
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Re: Can't decline employer LTD policy. Should I buy up?

Post by Tamarind » Thu Jul 12, 2018 2:41 pm

BruDude wrote:
Wed Jul 11, 2018 1:28 pm
That's one of the benefits of having an individual policy - once the coverage is in force, the insurance company cannot change any terms of the policy.
Thanks, so helpful!

As I am looking at quotes with future increase options, it's clear they cannot require additional medical information or change the underlying terms of the policy. It's also clear they can increase premiums if I ask for an increase in coverage, which makes sense.

But am I protected from having my premium increase above the cost of the additional coverage when I use the future increase option because I'm now older? Do they have to use the exact same premium table they used when I initially applied? Or the same one they'd use at that time for someone with the age/health characteristics I had when I applied? How does this work?

Also, are there any insurers you think are particularly good? I know this varies by occupation. My occupational class is 4A.

BruDude
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Location: Las Vegas

Re: Can't decline employer LTD policy. Should I buy up?

Post by BruDude » Thu Jul 12, 2018 8:36 pm

Tamarind wrote:
Thu Jul 12, 2018 2:41 pm
BruDude wrote:
Wed Jul 11, 2018 1:28 pm
That's one of the benefits of having an individual policy - once the coverage is in force, the insurance company cannot change any terms of the policy.
Thanks, so helpful!

As I am looking at quotes with future increase options, it's clear they cannot require additional medical information or change the underlying terms of the policy. It's also clear they can increase premiums if I ask for an increase in coverage, which makes sense.

But am I protected from having my premium increase above the cost of the additional coverage when I use the future increase option because I'm now older? Do they have to use the exact same premium table they used when I initially applied? Or the same one they'd use at that time for someone with the age/health characteristics I had when I applied? How does this work?

Also, are there any insurers you think are particularly good? I know this varies by occupation. My occupational class is 4A.
The base premium will always stay the same if the policy is "non-cancellable". Most companies have this feature built-in, but Standard has it as an optional rider and Ameritas has two different policies, one that is non-can and one that isn't.

When you increase benefits using an FIO rider, the premium is based on the age at which it is exercised. Future premiums are not guaranteed, only the ability to purchase them is guaranteed. However, DI premiums don't fluctuate much and the top-tier DI companies rarely increase their rates.

Guardian has the best DI you can buy. Ohio National, Ameritas, Standard, Principal, and Mass Mutual are also very good options. If the price is similar, I'd buy from Guardian even if it's a little higher. Your occupation class might be 4A with one company but could be anywhere from 3A-6A with another company....as an example, a neurologist is 4M with Guardian and 6M with Ohio National and Ameritas.

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