Is My Employer-Sponsored Disability Insurance Enough?
You’ve got a full-time job, and your employer offers disability insurance at little or no cost to you. That should be enough, right? Well, you might still need additional protection.1 Here’s why:
Most employer-provided disability insurance only replaces a portion of your income, and any benefits you receive may be taxable.2
Complete Coverage
Employer-provided disability insurance is a great start, but these policies only cover between 40–60% of your salary. Plus, any benefits you receive may be taxable,2 so you might bring home an even smaller percentage of your income (depending on your tax rate). If you’re unable to work for an extended period of time, how will you pay for your expenses?
Supplementing your employer-provided coverage with additional disability insurance allows you to cover more of your income, helping you maintain your lifestyle and support your family, even if you’re unable to work. These benefits are typically nontaxable,3 so that means more money in your pocket when you need it most.
Portability
Employer-provided insurance is not portable, so if you leave your job, you’ll lose your coverage. Your employer’s coverage is tied to your job, meaning if you switch jobs, you no longer have that safety net.
Coverage you secure independently—such as an individual policy or coverage through your professional association—is portable, and benefit payments often are not taxable because you pay the premium with your own funds. It is available to you no matter where you work. That means you have secure coverage regardless of where your career path takes you.
Benefits & Features
Employer-provided insurance is often highly restrictive and may not offer the benefits and features you want or may need. Disability insurance policies you secure independently offer greater control and flexibility compared to employer-provided coverage. If you own the coverage, you’re the boss. You can select the benefit amount, waiting period, and additional features that meet your needs. This level of customization helps ensure that you have the right protection in place to meet your financial obligations and goals.
So, how do you evaluate your employer plan or choose the right disability insurance for your needs?
Review Your Needs
It’s important to take the time to assess your specific financial needs and obligations. Consider factors such as your current income, expenses, savings, and the level of financial protection required to maintain your lifestyle if you become disabled.
Even your age has a significant impact on your coverage. The earlier you buy disability insurance, the lower your premium rates will be. As you age, your health may decline, and you become more likely to suffer a disability or illness, which contributes to higher rates.
If you rely solely on employer-provided coverage now and decide to become self-employed down the road, you may end up having to secure your own coverage anyway. And delaying could result in you paying higher rates—or even being declined for coverage—due to your age or health history. But if you secure coverage now when you are younger, you can lock in your rates.4
Enhanced Benefits
Check for enhanced benefits to strengthen your coverage even further. Some policies offer additional benefits, such as:
- Future Purchase Option (FPO)—With this option, you can increase your coverage as your income grows without answering medical questions or visiting a doctor.
- Cost of Living Adjustments (COLA)—This option adjusts your benefit payments upward as inflation rises.
- Spouse/Domestic Partner Coverage—If your spouse or domestic partner needs coverage, too, this feature can be valuable.
- Own Occupation Definition of Disability—If you become disabled, you could still receive benefits even if you are earning an income in another occupation.
Think long-term and select a policy that provides coverage for an extended period or until your expected retirement age. This approach can help ensure that you are protected throughout your career.
When you do secure coverage, carefully review the policy documents, including the terms and conditions, exclusions, limitations, and definitions of disability. Make sure you fully understand what is covered and what is not.
While your employer’s disability insurance is a valuable benefit, it may not offer sufficient coverage to fully protect you and your family in case of a disability. Supplementing it can provide an extra layer of protection, so you can better maintain your standard of living, even if you are unable to work due to a covered disability.
To learn about the benefits of disability insurance available through the AVMA LIFE Trust—including coverage, features, costs, eligibility, renewability, limitations, and exclusions—visit our website or give us a call at (800) 621-6360.
1 “Is Your Employer Long Term Disability Insurance Enough?” US Bank, 2023.
2 “Life Insurance & Disability Insurance Proceeds: Is the long-term disability I am receiving considered taxable?” Internal Revenue Service (www.irs.gov/faqs), 2024
3 Insurance coverage purchased with your own funds is generally not taxable under current tax regulations. You may wish to consult a personal Tax Advisor for further information.
4New York Life Insurance Company has the right to change rates on a class-wide basis.
