August 22, 2007, 7:00 am

Disability Insurance: Find What You Have With Your Employer First!

by: The Financial Blogger    Category: Insurance
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My manager recently had a herniated disk and missed more than 2 months of work. He will also probably miss the entire month of August which incurred not only an increase of my daily work but also raised concerns in regards to disability insurance. I am now a father of two beautiful children and I am making about 70% of our family income. I definitely can not afford becoming disabled without a good insurance plan.


While doing my CFP, I learnt that you have better chance of being disabled for a short term period than passing away before the age of 60. Most people think about their life insurance need and get the proper coverage. However, what about disability insurance? Are you well covered?


This is what I had to find out by checking at my employer’s disability plan. Knowing that my employer was entirely paying for the premium, I didn’t expect much than having a free wheelchair or a bag of peanuts. Instead, I was quite surprised by the coverage I have.


In fact, my employer set a disability plan separated between 3 plans. The first plan is for small disability. For the first three weeks, I am covered at a 100%. Then, the second plan comes into play. It will pay for 85% of my income for the 4th week till the 26th week (about 6 months). After 26 weeks, I will still get 70% of my salary till I receive my pension (I guess until the age of 65?).


After reading Brian Poncelet’s comment on employer’s disability plan covering only 60%, I started to freak out. Knowing that I have one of the best employer’s insurance plans makes me feel better. However, I would still have to calculate my real need to know if 70% of my salary would be enough to cover all our expenses. But worst come to worst, with 70% of my salary, we will still be able to keep our house and a big part of our lifestyle. This is great news and a great relief.


I really think disability insurance is being a must when you have a family to support, especially if you represent the main source of income in your house. However, before starting to panic, you might want to check your employment benefits. You might be covered for your needs already!

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FB, also note that if you are paying a portion of your job benefit, your disability benefit is not taxable if you have to collect. So you want to compare your disability benefit to your “after-tax” income.

Another note about disability insurance, “own occupation” disability insurance will protect you against injury that prevents you from doing your own profession. If you don’t have this type of insurance, the insurance co will expect that you do “any type of job” after a certain period of time.

Another important thing to consider is COLA (cost of living adjustment). say you are making 50K/year, and you get 70%. That 35k/year will not buy as much in 20 or 30 years as is does now.

Hey FB, one of the forgotten pieces of disability is coverage for related expenses.

Let’s say you get smacked in a car accident and get paralyzed waist down, you’ll probably be out for 3-6 months at 85%. However, you’re not just lower on income, you’re also going to need money to buy some serious stuff. You now need a ramp and a wheelchair and a stairwell lift (or two). So it’s also nice to know if these extra expenses are covered.

There are usually provisions for loss of limbs etc. But it’s also worth checking that you even have these and that they’re reasonable. 🙂

by: The Financial Blogger | August 22nd, 2007 (4:22 pm)

MDJ, good point about the “own profession”, it is important to verify which type of occupation is covered. I have to check my own… I have no clue!

Joel, If I am not mistaken, I think mine is adjusted related to the cost of living. If not, I might have a problem in 20 years!

Gates, you bring a very good point too. Most of the time disability comes with additional expenses.

In conclusion, I guess a small disability plan could cover for my employer’s insurance flaws. However, it is very important to consider all the above mentioned points. Thx for the feed-back!