Who doesn’t love employer paid benefits? That includes health insurance, life insurance, disability insurance, a company match on 401(k) contributions, and other assorted perks. In each case, the employer pays at least some of the cost of maintaining the benefit. But certain benefits are better when you have them on your own.
Disability insurance is an excellent example. There are certain benefits to having your own disability policy, so you might want to give it some serious consideration.
Your Own Disability Policy is Completely Portable
Let’s face it, jobs don’t last as long as they used to. You maybe on a job for a few years only, before you will be facing either a job elimination, or finding yourself stagnating in the same position for way too long. Still another factor is that many jobs today are contract based. You’re brought in to do a certain job, and once the assignment is completed the position will close out.
Portability of benefits has become a major factor in the 21st century. It’s always possible that you will have a full menu of benefits with each employer you work for, but there will be times when you are in-between jobs, doing contract work, or even be employed by companies that do not offer any benefits at all. Even companies that do offer disability coverage almost always have a waiting period of anywhere from 30 days to six months. Should you become disabled during that time, you will not have any coverage.
The reason why it’s so important to have your own disability insurance policy is because disability insurance is the one type of insurance that insures your ability to earn a living. You will need it to enable you to survive in the event that you are unable to work due to disability. Having your own private disability insurance policy is the only way to be certain that you will be covered no matter what. And when you go from one employer to another, you will take your policy with you, regardless of what kind of coverage the various employers offer, or how long you will have to wait to get it.
You’ll Have No Concerns About Future Insurability
Much like life insurance, in order to get disability insurance, you need to qualify for coverage. The insurance company will evaluate your age, your occupation, and your overall health in deciding whether or not to extend coverage, and what the premium level will be.
Obviously it’s best to apply for coverage when you are young and healthy. You can do that if you have your own private disability insurance policy. Once you have it, you can have it for the rest of your working life, and it can’t be canceled as long as you make your premium payments on time.
If you rely on an employer sponsored disability policy, and you are laid off and lose your coverage at a time in life when you have serious health conditions, you may not be able to get disability coverage on your own. And if you find yourself working in one of those many job situations that don’t offer benefits, it can be a real problem.
Having your own disability insurance policy is the only way to lock in this critical benefit.
You Can Choose the Plan, the Benefit and the Options You Want
Disability insurance policies offered by employers are standard provisions across the board. That means that you will have no options other than those that have been preselected for the policy.
This may limit your ability to get the monthly benefit amount that you actually need. For example, employer disability plans typically limit your benefits to both a percentage of income, and a specific dollar amount. It might be something like 60% of your base salary, up to a maximum monthly benefit of $3,000. But what if most of your income is from commissions and bonuses? That income will not be used to determine your benefit.
The situation is even more severe with Social Security Disability Insurance (SSDI). The average monthly benefit payment under SSDI is $1,165, and if you are accustomed to living on $5,000 or $10,000 per month, that won’t come close to supporting your household.
Policy options are another area of concern. Disability insurance policies are based on either “any occupation” or “own occupation”. Many employer-sponsored disability plans are based on “any occupation”; that means that in order to qualify for benefits you have to be incapable of performing any kind of work. That means not just your job, but any type of replacement work you may be capable of doing. It may be difficult to ever collect benefits under an any occupation provision.
But if you have your own disability policy – where you control the provisions and options – you can choose an “own occupation” provision, which means that you will be eligible for benefits simply because you are unable to continue in your present occupation. It makes collecting benefits far easier.
Benefits Are Not Taxable Because You Make the Premiums
Since monthly disability benefits don’t fully replace your pre-disability income – only a percentage of it – you should want to maximize the benefit that you actually do receive. In this way, having your own disability insurance policy will be a major advantage because the benefits you receive will not be taxable.
The reason they won’t be taxable is because you will be paying the premiums on the policy. Those premiums are not tax-deductible when made, so the benefits will not be taxable when received.
By contrast, benefits received under an employer paid plan will be fully taxable when received. This is because the employer makes the premium payments on your behalf. There is no cost to you for those premiums, so the benefit is fully taxable. In addition, your employer will take a tax deduction for the premiums paid as a business expense. The tax will therefore have to be paid at some point in the process, and that will be when you begin receiving benefits.
The tax bite on your disability benefits from an employer paid plan will be reduced as a result of that tax liability. But with your own plan, there will be no tax liability. That will give you full use of the entire disability benefit at a time when they are badly needed.
If you haven’t thought about taking your own disability insurance policy, leave your contact details in the form below and we’ll get back to you to make sure that you get the best coverage for the lowest possible premium.
Neal here. If you have specific questions on life insurance or face hurdles getting coverage - email me please. As an alternative, we could jump on the phone (888-613-4999) for a few minutes. Either way, I'm happy to do my best to point you in the right direction.