By Guest Author: Bob Gertie, CLTC

Disability insurance being added on top of employer coverage is by far one of the most common recommendations being made by financial planners across the country.  This is because of the substantial gaps and limitations often found in group policies.  These include:

  • Poor definitions of disability (often any occupation after 2-years)
  • No partial disability benefits
  • No recovery benefits
  • No COLA
  • No catastrophic disability benefits
  • No coverage of bonus, stock or commission income
  • Mental and nervous limitations
  • The benefit being taxable
  • The coverage not being portable
  • The coverage being limited in amount

In short, suppose someone has a base salary of $200K and bonus of $200K with a group plan that pays 60% to $10K.  This person might only have 60% of their base $200K or the max $10K per month in taxable income if disabled AND the group plan actually paid.

They could go from about $23K net of tax monthly income to $7K net of tax monthly income if disabled AND the group plan paid.  Further, if they never returned to work the benefit amount would never adjust for inflation.  Most often this causes a large financial planning problem.  One solution is supplemental disability coverage to fill the gap.

We also think about coverage to secure retirement plan contributions in addition to income protection.

Males should expect to pay about 1-3% of their gross income for proper disability insurance.  Females are in the 2-4% gross income cost range.