If you have disability insurance at work, you may think there isn’t any reason to buy a policy on your own; however, employer disability coverage may not be enough to address your needs.

Having disability insurance at work is a great start since the policy can help financially if you become sick or injured and are unable to work. But the fact is that your employer coverage may not provide enough money to cover all of your bills—especially if you are the primary household earner.

How much coverage do you need?

Employers’ disability insurance policies generally cover only 60% of one’s salary and cap monthly benefits before taxes—even when it is much less than 60% of your base income. It’s important to note that the 60% of income is based on average earnings so it rarely includes commissions, bonuses, or other income—leaving many people with a lot less money than on which they’re accustomed to living.

It’s important to find out exactly how much your employer’s disability insurance policy would pay if you become disabled. If you wouldn’t receive enough money to cover all of your monthly bills, then it means you need more coverage. You may want to start your search by asking your employer whether you could buy additional coverage for yourself. If not, you may need to get an individual policy or coverage you own to help to fill the gap between insurance coverage through your employer and your real cost of living.

When you purchase disability insurance, you will not only increase your coverage, you will be able to continue the coverage even after you leave that employer. If you pay the premiums on your own, then any benefits you receive will not be taxed* unlike disability insurance benefits from an employer-paid policy, which are generally taxable.

What you need to look for in a disability insurance policy

When shopping for your own disability insurance, look carefully at the definition of disability. This is the key phrase that determines under what circumstances the policy will pay you benefits. This definition can vary enormously. Some disability insurance policies will only pay if you can’t do any job at all. Some policies will pay some benefits if you are unable to earn as much money as you did before the disability. The most desirable policy will pay if you cannot do your current job, even if you can do another job (called an “own-occupation” policy). If you have a highly specialized career then it may be worthwhile to pay extra for an own-occupation policy.

It is important to check out the length of time that the benefits will be paid. Some pay for only two years while others will provide benefits until age 65. You may be able to save money with less coverage depending on your age and whether you already have considerable retirement savings. It is also important to find out how the benefits will rise with inflation and see whether the policy offers “residual benefits” which can provide some payment if you become partially disabled and have to cut back on your hours and income.

Learn more about disability insurance available to AIA members or call (877) 801 3727.

* 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 current information. NYL-1885724