Is it worth paying extra for more long term disabillity insurance?

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CobraKai
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Is it worth paying extra for more long term disabillity insurance?

Post by CobraKai »

My insurance coverage includes long term disability insurance that covers 50% of my salary.

For approx $20 per month, I can bump that up to 60%.

Is this worth considering or should I be looking for my own policy (outside of employer) if I were to expand this coverage?
djeayzonne
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Re: Is it worth paying extra for more long term disabillity insurance?

Post by djeayzonne »

Not sure if this helps, but now that I have a high-level position (Director) and am in those critical years between having FU money but not basic financial independence yet, I decided to get my own disability insurance for a 10-year term.

It is true own-occupation and would pay out around 65% of current salary. This is costing me 300 a month.
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CobraKai
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Re: Is it worth paying extra for more long term disabillity insurance?

Post by CobraKai »

djeayzonne wrote: Wed Nov 18, 2020 3:32 pm Not sure if this helps, but now that I have a high-level position (Director) and am in those critical years between having FU money but not basic financial independence yet, I decided to get my own disability insurance for a 10-year term.

It is true own-occupation and would pay out around 65% of current salary. This is costing me 300 a month.
Wow I didn't realize a non-employer policy cost that much. Thanks for sharing.
Dennisl
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Re: Is it worth paying extra for more long term disabillity insurance?

Post by Dennisl »

Yes. Defensive side of asset protection is life insurance and disability insurance. You being disabled is the greater risk because in addition to not contributing income, you come dead weight with added costs to take care of you. $20/month is very cheap. Many people on the forum, myself included pay thousands a year for added coverage in addition to what our employers offer us to protect us. Esp for younger folk, future earning potential is your most valuable asset.
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simplesimon
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Re: Is it worth paying extra for more long term disabillity insurance?

Post by simplesimon »

CobraKai wrote: Fri Nov 20, 2020 10:51 am
djeayzonne wrote: Wed Nov 18, 2020 3:32 pm Not sure if this helps, but now that I have a high-level position (Director) and am in those critical years between having FU money but not basic financial independence yet, I decided to get my own disability insurance for a 10-year term.

It is true own-occupation and would pay out around 65% of current salary. This is costing me 300 a month.
Wow I didn't realize a non-employer policy cost that much. Thanks for sharing.
CobraKai, a good disability policy is going to have stronger/more favorable language (i.e. it pays out more often) than the typical employer sponsored group policy, which is why it is more expensive.

As to whether it's a good idea for you to expand the coverage for the $20/month, that's up to you. You'll have to re-select this choice every year since its an employer offered benefit so it's a personal decision based on what you think may happen in 2021.
moneybags
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Re: Is it worth paying extra for more long term disabillity insurance?

Post by moneybags »

This thread just prompted me to get a quote and it seemed to not make any sense for me.

My company pays for and provides 66% of base salary till 65 which would be about $9,500 per month. Policy Genius quoted me ~$28/month for $600/month in coverage (max benefit I could get). FYI I'm a very healthy mid 30s male.

Reflecting more on this, I realize my company's coverage is way more than enough. $9,500/month is 114k per year which is higher than our target SWR amount when we FIRE. Its almost as if having a qualified disability will help us FIRE sooner? I realize it runs out at 65 unlike a large portfolio with SWR. However if I had a disability before reaching out FIRE number we'd still have multiple years to save my spouse's income.
Harper
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Re: Is it worth paying extra for more long term disabillity insurance?

Post by Harper »

If you have an employer that offers long term disability, whether you pay or they pay that very small group premium for you as a perk, it is very good protection to have and do not dismiss it in your annual benefit enrollments. Purchasing outside personal private policies makes real sense and protection for those who do not have that employer provided benefit or are self employed. It is very important to understand what is considered short term (100%) usually and when does that end and the company then turns you over to recieve benefits under the Insurance Company that carries your long term policy and their requirements. This is my understanding.

I personally believe long term insurance on your ability to do what you do to pay for your living expenses, it probably the most valuable insurance to have and hopefully will never need or collect. This is my opinion only.
skierrex
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Re: Is it worth paying extra for more long term disabillity insurance?

Post by skierrex »

If the employer pays, I believe it is taxable income. So, it's 50% minus taxes.

If you pay for the upgrade, it's not taxable income. So, its's 60% with NO taxes.

In my experience, the insurance company will either want you or require you to apply for Social Security Disability Insurance, and will reduce their payments by the amount of the SSDI.

60% with NO taxes is definitely worth $20 a month for me.
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Tamarind
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Re: Is it worth paying extra for more long term disabillity insurance?

Post by Tamarind »

Yes, I would say it's worth it for the OP.

But for anyone who's interested, keep reading for an alternative.

The employer policy probably has much weaker terms, ie only considering you disabled if you can't do any work (any occupation) rather than if you can't perform in your field (own occupation). There are a few reasons the employer coverage is less expensive (employer pays some, risk pool of all employees), but the big one is the terms mean the employer policy is less likely to actually pay if you are disabled. It's much better than no LTD insurance, and is likely fine if you have a major stroke, car accident, cancer, or MS. But insurance companies won't insure the same income twice, so existing employer coverage reduces your ability to buy your own on your preferred terms.

I wouldn't be able to earn a living in my field if I couldn't think fast and speak clearly - any major cognitive disability would drastically and permanently reduce my income. Employer policies wouldn't cover me well if I got one traumatic knock on the head but the rest of me was fine.

I first added a small supplemental personal LTD policy, then took advantage of a change of employers to exercise an FIO and now I'm fully covered by my own policy. It costs me about $250/month. In the event that I were to need it, it would pay out as much as we project wanting for retirement tax-free ($75k/yr). When I reach my retirement goal and no longer need to earn income I can drop it.
MikeG62
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Re: Is it worth paying extra for more long term disabillity insurance?

Post by MikeG62 »

I never did. As far as I recall, my employer provided disability was either 60% or two-thirds of my salary. Since I felt it was significantly more than enough to cover our expenses in the event I was out on disability, I saw no need to pay to increase it (and given I considered going out on disability a very, very low probability event).
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BruDude
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Re: Is it worth paying extra for more long term disabillity insurance?

Post by BruDude »

CobraKai wrote: Wed Nov 18, 2020 3:05 pm My insurance coverage includes long term disability insurance that covers 50% of my salary.

For approx $20 per month, I can bump that up to 60%.

Is this worth considering or should I be looking for my own policy (outside of employer) if I were to expand this coverage?
I would suggest buying your own policy if you can. I like to use this comparison: Life insurance is simple - you die, they pay a claim, you live, they don't. DI is much more complex as there are a lot of moving parts that determine how much you get paid, when you get paid, and for how long you get paid. Quality of the contract terms and definitions are far more important than price when it comes to DI.

There are a number of drawbacks to group disability insurance compared to individually purchased DI:

1. Most group policies only have the "own occupation" definition of disability for the first two years of a claim, then the definition changes to a less favorable one, often an "any occupation" definition. Individual policies can be purchased with the own occupation definition for the entire benefit period.
2. When you leave the employer, you lose the group coverage. The individual DI policy stays in force when you change employers, and you do not have to re-qualify for coverage or benefits as the contract is already guaranteed. Most people do not stay with the same employer for their entire career these days.
3. Group LTD benefits are taxable when the employer is paying the premium, while individual DI benefits are non-taxable since you're paying the premiums with after-tax money. In a "buy up" scenario like you have here, the 50% portion would be taxable and the 10% portion would be non-taxable since you're paying the premium for that portion.
4. Group policies generally do not cover partial disabilities, or have a very limited benefits (such as 6-12 months maximum coverage). This is a massive difference as most disabilities will either start or end as a partial disability, or with a loss of income after you've fully recovered, or a loss of income due to reduction in hours.
5. Group policies generally do not cover any bonus income or restricted stock awards, it's usually base income only. If your compensation is made up of part base salary and part bonus, you may not have as much coverage as you think.
6. There is usually no COLA provision in a group policy.
7. The employer or insurance company can terminate or change the group policy at any time. If for some reason the group coverage was terminated, you could be left with nothing, and at that point it may be too late or too expensive to get your own coverage.
8. Many group LTD policies have a benefit cap such as $5k/month, $10k/month, etc. If you are a high income earner, you may be well above the capped amount, leaving much of your income exposed/uncovered.
9. Just about all group policies have a 24-month limitation for mental/nervous disorders, while you can get an unlimited benefit for an individual policy. This may not sound like a big deal now, but mental/nervous disorders are about ~10% of all disability claims and are the third-leading cause of disability according to Guardian's statistics.

Having said all of that, if your 50% group plan is paid by the employer, you probably can't opt out of it and will be limited in the amount of coverage you can buy on your own. The individual policy can be purchased with a Future Increase Option rider that allows you to add more coverage in the future regardless of any health changes, which can come in handy if/when you ever lose the group coverage.

I would encourage you to read and understand your group policy, do some research on individual policies, and compare the two. Will an individual DI policy be more expensive? Absolutely, no doubt about that one. In general, you get what you pay for with disability insurance.
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beyou
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Re: Is it worth paying extra for more long term disabillity insurance?

Post by beyou »

I have employer insurance that is “own occupation”, covers total comp (including bonuses) and reasonably priced, so don’t assume, read the policy and see what it offers.
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Re: Is it worth paying extra for more long term disabillity insurance?

Post by BruDude »

beyou wrote: Mon Nov 23, 2020 1:01 am I have employer insurance that is “own occupation”, covers total comp (including bonuses) and reasonably priced, so don’t assume, read the policy and see what it offers.
Voluntary group policies are usually more favorable than employer-paid ones. It is very rare to find an employer-paid policy that has own occupation through age 65 and covers bonus income. Even so, it still has the other drawbacks that most group policies do as mentioned above, and it likely does not have a partial/residual disability benefit through age 65. Only way to find out for sure is by reading the policy.

Without getting too complicated, there are several types of group LTD - 100% employer-paid, 100% employee-paid (voluntary coverage), a hybrid "buy-up" option like OP where the employer pays for a base policy and the employee can voluntarily buy more coverage, and there are also policies called "guaranteed standard issue" which are actually individual policies that are purchased on a group basis, usually requiring at least 10 employees to sign up. GSI policies generally have the best benefits, but also the most expensive variety.
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Re: Is it worth paying extra for more long term disabillity insurance?

Post by neb2020 »

Tamarind wrote: Sun Nov 22, 2020 8:15 am I first added a small supplemental personal LTD policy, then took advantage of a change of employers to exercise an FIO and now I'm fully covered by my own policy. It costs me about $250/month. In the event that I were to need it, it would pay out as much as we project wanting for retirement tax-free ($75k/yr). When I reach my retirement goal and no longer need to earn income I can drop it.
How did you get your FIO increased coverage if you're in between jobs? Did your new job also provide group LTD?

My agent refused to exercise FIO because my new job had group LTD. I was damn pissed and fired that person (had I known I would have submitted the FIO increase before taking the new job).
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Tamarind
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Re: Is it worth paying extra for more long term disabillity insurance?

Post by Tamarind »

neb2020 wrote: Mon Nov 23, 2020 4:43 am
Tamarind wrote: Sun Nov 22, 2020 8:15 am I first added a small supplemental personal LTD policy, then took advantage of a change of employers to exercise an FIO and now I'm fully covered by my own policy. It costs me about $250/month. In the event that I were to need it, it would pay out as much as we project wanting for retirement tax-free ($75k/yr). When I reach my retirement goal and no longer need to earn income I can drop it.
How did you get your FIO increased coverage if you're in between jobs? Did your new job also provide group LTD?

My agent refused to exercise FIO because my new job had group LTD. I was damn pissed and fired that person (had I known I would have submitted the FIO increase before taking the new job).
I changed jobs from a company with automatic group LTD to a small company that had only optional group LTD. I declined the group coverage, then exercised my FIO a few months later.
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beyou
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Re: Is it worth paying extra for more long term disabillity insurance?

Post by beyou »

BruDude wrote: Mon Nov 23, 2020 1:11 am
beyou wrote: Mon Nov 23, 2020 1:01 am I have employer insurance that is “own occupation”, covers total comp (including bonuses) and reasonably priced, so don’t assume, read the policy and see what it offers.
Voluntary group policies are usually more favorable than employer-paid ones. It is very rare to find an employer-paid policy that has own occupation through age 65 and covers bonus income. Even so, it still has the other drawbacks that most group policies do as mentioned above, and it likely does not have a partial/residual disability benefit through age 65. Only way to find out for sure is by reading the policy.

Without getting too complicated, there are several types of group LTD - 100% employer-paid, 100% employee-paid (voluntary coverage), a hybrid "buy-up" option like OP where the employer pays for a base policy and the employee can voluntarily buy more coverage, and there are also policies called "guaranteed standard issue" which are actually individual policies that are purchased on a group basis, usually requiring at least 10 employees to sign up. GSI policies generally have the best benefits, but also the most expensive variety.
Mine is a partially employer paid policy with option to buy significant additional covering, somewhat similar to OP (but OP sounds skewed toward less employee and more employer paid). So yes that may be why mine does include benefit through SS retirement date (age 67 for many). Pays 60% of prior year average monthly income including bonus. And it does appear to be all-or-none, meaning if they deem you can work part time you get no payments. They also reduce payments by SSDI payments you are entitled to. IMO the insurance is cheap and yes it only covers a significant disability.
If I had to pay much more in the form of a private separate policy, which I did try to get quotes years ago when younger, I doubt I would go for that. The cost was much much more than my employee paid cost, for possibly marginally better coverage. The fact I don't really believe any insurer will pay out without torturing their policy holders and making them fight like hell, is one reason I wouldn't spend much on such a policy. But since it's so cheap, why not get it, not much downside. The only insurance I think is worth spending more to get more is LIFE since it's hard to argue if you are dead or not. Everything else insured is just an exercise in claims denial hoping you won't or don't know how to fight for your rights.
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Re: Is it worth paying extra for more long term disabillity insurance?

Post by Vogatrice »

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Re: Is it worth paying extra for more long term disabillity insurance?

Post by willthrill81 »

An additional 10% tax-free (actually a 20% increase from the current 50%) for only $20/month sounds like a no-brainer to me.
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Re: Is it worth paying extra for more long term disabillity insurance?

Post by BruDude »

neb2020 wrote: Mon Nov 23, 2020 4:43 am
Tamarind wrote: Sun Nov 22, 2020 8:15 am I first added a small supplemental personal LTD policy, then took advantage of a change of employers to exercise an FIO and now I'm fully covered by my own policy. It costs me about $250/month. In the event that I were to need it, it would pay out as much as we project wanting for retirement tax-free ($75k/yr). When I reach my retirement goal and no longer need to earn income I can drop it.
How did you get your FIO increased coverage if you're in between jobs? Did your new job also provide group LTD?

My agent refused to exercise FIO because my new job had group LTD. I was damn pissed and fired that person (had I known I would have submitted the FIO increase before taking the new job).
Your agent has nothing to do with the insurance company refusing to exercise the FIO. If you are expected to gain group LTD any time in the following 12 months, the insurance company will look at it the same way as if you already had the group LTD. One of the FIO application questions will ask if you are expected to change jobs in the next 6 months.

These are simple underwriting guidelines that every company looks at the same way. Therefore, trying to exercise the FIO before starting the new job would not have changed anything.
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CobraKai
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Re: Is it worth paying extra for more long term disabillity insurance?

Post by CobraKai »

BruDude wrote: Sun Nov 22, 2020 11:54 pm I would suggest buying your own policy if you can. I like to use this comparison: Life insurance is simple - you die, they pay a claim, you live, they don't. DI is much more complex as there are a lot of moving parts that determine how much you get paid, when you get paid, and for how long you get paid. Quality of the contract terms and definitions are far more important than price when it comes to DI.

There are a number of drawbacks to group disability insurance compared to individually purchased DI:

1. Most group policies only have the "own occupation" definition of disability for the first two years of a claim, then the definition changes to a less favorable one, often an "any occupation" definition. Individual policies can be purchased with the own occupation definition for the entire benefit period.
2. When you leave the employer, you lose the group coverage. The individual DI policy stays in force when you change employers, and you do not have to re-qualify for coverage or benefits as the contract is already guaranteed. Most people do not stay with the same employer for their entire career these days.
3. Group LTD benefits are taxable when the employer is paying the premium, while individual DI benefits are non-taxable since you're paying the premiums with after-tax money. In a "buy up" scenario like you have here, the 50% portion would be taxable and the 10% portion would be non-taxable since you're paying the premium for that portion.
4. Group policies generally do not cover partial disabilities, or have a very limited benefits (such as 6-12 months maximum coverage). This is a massive difference as most disabilities will either start or end as a partial disability, or with a loss of income after you've fully recovered, or a loss of income due to reduction in hours.
5. Group policies generally do not cover any bonus income or restricted stock awards, it's usually base income only. If your compensation is made up of part base salary and part bonus, you may not have as much coverage as you think.
6. There is usually no COLA provision in a group policy.
7. The employer or insurance company can terminate or change the group policy at any time. If for some reason the group coverage was terminated, you could be left with nothing, and at that point it may be too late or too expensive to get your own coverage.
8. Many group LTD policies have a benefit cap such as $5k/month, $10k/month, etc. If you are a high income earner, you may be well above the capped amount, leaving much of your income exposed/uncovered.
9. Just about all group policies have a 24-month limitation for mental/nervous disorders, while you can get an unlimited benefit for an individual policy. This may not sound like a big deal now, but mental/nervous disorders are about ~10% of all disability claims and are the third-leading cause of disability according to Guardian's statistics.
Thanks for the information. I will definitely need to do more digging as the insurance company website does not contain all that much information. It will be interesting to see what the fine print says.
BruDude wrote: Sun Nov 22, 2020 11:54 pm Having said all of that, if your 50% group plan is paid by the employer, you probably can't opt out of it and will be limited in the amount of coverage you can buy on your own. The individual policy can be purchased with a Future Increase Option rider that allows you to add more coverage in the future regardless of any health changes, which can come in handy if/when you ever lose the group coverage.
I don't think there is a way to opt out as the 50% is paid for. Didn't realize that would limit the amount of coverage I could buy on my own. Thanks again for the information.
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CobraKai
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Re: Is it worth paying extra for more long term disabillity insurance?

Post by CobraKai »

Thanks for the responses and information.

I think I will go ahead and purchase the extra coverage.

In the future, will look into getting my own policy. Didn't realize that it is so expensive!
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