The Hidden Value of Social Security Disability Insurance: Why It’s Important During Benefits Enrollment
Marketing Manager, Life and Disability Insurance, Individual Markets
Guardian Life Insurance Company of America®
Editor’s Note:
When you think about protection, you might think about the assets in your life that you safeguard by purchasing an insurance policy — like your car, your home or other valuables. Maybe you think about other common insurance types offered through your employer such as health, dental or life insurance. But what about an intangible asset such as your income; have you thought about protecting it?
Income is the foundation that allows us to fund every aspect of our life. Disability insurance protects a portion of your income if you become too sick or injured to work. And although you may have a group long term disability (LTD) policy through your employer, often the coverage isn’t enough to cover your monthly expenses.
Disabilities can and do happen
Don’t let misinformation about disability income insurance keep you from being protected. The truth is that disabilities happen to more people, more often than you may think, and they last longer, too. In fact, 1 in 4 of today’s 20-year-olds will become disabled during their working years and the average duration of a long-term disability claim is 34.6 months.1,2 With that in mind, it makes sense to ensure that should you experience a “what if” moment like a disability, your income is protected and you can focus on what really matters — your recovery.
Many individuals tend to think that accidents are the main cause of disability, however, illnesses are far more likely to impact your ability to work and support yourself and your family. In fact almost 90% of disabilities are caused by illnesses.3 Common causes include arthritis, cancer and heart conditions just to name a few. When you start to think about disability through the lens of a disabling illness rather than an accident, you can start to understand the importance of protecting your ability to earn an income throughout your working years.
The income gap
Having a group LTD policy from your employer is a great place to start, but your plan may not provide the coverage you need. Most group plans provide basic income protection but aren’t geared to highly-compensated employees because they typically only cover base salary and place a cap on monthly benefits. Most group plans don’t cover bonus and incentive compensation — or retirement plan contributions — so a considerable amount of your income may be exposed. Also keep in mind that group policies aren’t usually portable, so if you leave your employer, you can’t take your coverage with you. In addition, if your employer pays your premiums with pre-tax dollars, you’ll be taxed on any benefit you receive.
Although group policies offer baseline protection, they typically only replace about 40% of your income, leaving you with a gap between your income and what you’d receive through your disability benefit. This gap is often referred to as an income gap.
An income gap can make it difficult to keep up with everyday expenses, especially when you’re recovering from a disability that leaves you unable to work. Oftentimes individuals need to dip into their savings, retirement or ask family members for assistance just to keep up. That’s why having an additional individual disability insurance (IDI) policy on top of your group coverage can be beneficial. By having an individual policy, you can help to close that income gap.
Combining a group LTD policy with an individually-owned policy not only protects a larger portion of your income, but individual policies are also customizable giving you the flexibility to choose your coverage amount and add on additional features and riders as needed. In addition, IDI policies are portable, meaning it is yours to keep and even if you leave your employer, you can take your coverage with you. Keep in mind that a strong individual disability policy will help you to close the gap between your income and your group benefits. By combining the two, you can usually replace up to 80% of your income. In addition, the benefits you receive are tax-free when you pay with after-tax dollars.
Find that coverage that’s right for you
The first step in ensuring that your income is adequately protected if you cannot work is understanding the coverage you already have. Find out what is offered to you through your employer and understand just how much coverage you have through your group plan. Next, identify your savings goals and determine whether your existing coverage is enough. If not, work with a financial professional to discuss your options and how you can achieve your goals.
Don’t fall short when it comes to disability insurance. Make sure you understand your plan and be honest when evaluating your current coverage. It’s easy to think that a disability won’t happen to you, but if it does you can have peace of mind knowing your income is protected. After all, your income is truly your most valuable asset and closing the income gap can make all the difference.
Learn more about how to Bridge the Paycheck Gap.
1 Social Security Administration Fact Sheet, June 2022
2 The Council for Disability Awareness, 2023. https://disabilitycanhappen.org/overview/
3 Integrated Benefits Institute, 2018 Health and Productivity Benchmarking, Long-Term Disability
Material discussed is meant for general informational purposes only and is not to be construed as tax, legal, or investment advice. Although the information has been gathered from sources believed to be reliable, please note that individual situations can vary. Therefore, the information should be relied upon only when coordinated with individual professional advice. This material contains the opinions of the author but not necessarily those of PAS or Guardian. Guardian, its subsidiaries, agents, and employees do not provide tax, legal, or accounting advice. Consult your tax, legal, or accounting professional regarding your individual situation.
Individual disability income products underwritten and issued by Berkshire Life Insurance Company of America (BLICOA), Pittsfield, MA or provided by Guardian. BLICOA is a wholly owned stock subsidiary of and administrator for the Guardian Life Insurance Company of America (Guardian), New York, NY. Product provisions and availability may vary by state. Optional riders are available for an additional premium.
GUARDIAN® and the Guardian Logo® are registered trademarks of The Guardian Life Insurance Company of America.
©Copyright 2023 The Guardian Life Insurance Company of America, New York, N.Y. Full permission given to The Council for Disability Awareness to reproduce this material.
2023-153770 (exp: 4/2025)
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