Most employers offer group life and disability insurance coverage. While this is an important benefit for employees, it doesn’t mean that you’re adequately covered. In fact, if that’s all the coverage you have, you could be woefully under-insured.
It’s always best to evaluate insurance coverage earlier in life rather than later, as rates and terms are tied to your health and age. Here are some basic tips on evaluating your coverage and what to consider when purchasing additional insurance.
Find Out How Much Coverage You Have
- How much is your employer-based coverage? Employers rarely offer more than one times your salary. For most people, this is inadequate.
- How much is provided through your employer plan versus privately owned? You can often purchase supplemental coverage through the group plan, or purchase additional private insurance independently.
- Are your beneficiary designations up-to-date? This is especially important if you’ve recently experienced a life event, like a marriage, the birth of a child, or a divorce.
Find Out How Much Coverage You Need
- Do you have dependents? These might include a spouse, children, a dependent parent or other family member.
- Do you have significant savings that surviving dependents can use to replace your long-term earnings? If not, your life insurance needs almost certainly exceed your basic work coverage.
- What needs are you trying to fulfill? These might include allowing a surviving parent to stay home or work part-time, paying off the house, sending your kids to college, or meeting a longer-term obligation like caring for a disabled family member.
- How long will those needs last? Generally speaking, longer periods of need require larger funding amounts.
Dynamic Funding Strategies
- How much will your obligations change over time? We often recommend a laddering strategy, allowing shorter-term policies to naturally expire as insurance needs diminish e.g., your child graduates college or you pay off your mortgage. This reduces your overall costs without reducing appropriate coverage levels.
Loss Of Employment Means Loss Of Company Coverage
- Is your employer-based coverage portable? Typically, the answer is no. This may leave you uninsured if your employment terminates. Private coverage provides consistent coverage and peace of mind for you and your loved ones.
Deciphering Your Current Coverage
- Do you have work-based disability coverage? The good news is that group coverage gives you some basic level of protection. However, it seldom offers the security you think you have or the coverage you really need.
- What does your policy cover? When it comes to disability insurance, the devil’s often in the details. Critical definitions to examine in your disability policy include:
- Definition of Disability: This outlines the determining criteria to qualify as being disabled. Ideally, you want a definition that covers your own occupation or an occupation for which you are trained, versus any occupation, which leaves you at risk.
- Benefit Payable: Typically, benefits max out at 60% of your earnings. However, if there are caps, the amount of benefits you receive could end up being considerably lower than your current income. Furthermore, compensation is often limited to pure salary payments, so if you receive commissions, incentive payments or large bonuses, be sure to find out of these would be included in your disability payment determination.
- Duration of Benefits: If you become disabled, hopefully you’ll make a full recovery. If not, your benefits will need to last at least until age 65. Sadly, some long-term policies provide coverage for as little as two years.
Evaluating Private Coverage
- Does your company disability plan offer appropriate protection? If not, it might be time to explore a private policy to augment your group coverage.
- Are you thinking of switching jobs? Your new employer may offer reduced disability insurance, or none at all. A private policy will provide for your long-term protection.
- Are you thinking of starting your own company? If so, independently owned disability insurance will protect you, your loved ones and your business in the event of incapacity.
Maximizing Your Coverage
- Are your premiums paid on an after-tax basis? This is one of the easiest and most effective ways to enhance your disability insurance coverage. It ensures that any future benefits will be paid to you tax-free, which can make the traditional payment of 60% of your salary stretch a lot further. If you have a group plan, check with your payroll department regarding this option.
- Are you a business owner? If so, and you have your own plan, don’t fund it through the company; pay for it personally.
There are a multitude of variables involved in determining your life insurance and disability coverage needs. SageVest Wealth Management’s CFP ® advisors are qualified to work with you in determining how you’d like to provide for your family and loved ones, coupling your goals and insurance costs into ultimate decisions. As a fee-only financial planning firm, we don’t sell insurance, nor do we receive any commissions or incentives. This structure ensures that any recommendations we provide are solely in the best interests of you and those you care about. Please contact us to discuss your insurance coverage in relation to your personal protection requirements.