Annual enrollment will soon be underway for many employees. During this time, workers choose benefits they feel are most important to protect their health and financial well-being. Understanding the benefits your employer offers and their associated costs are most likely key considerations for you.
In this post, I am going to focus on one type of benefit – disability insurance – that insures your income if you can’t work for a period of time. I’ll also explain how this type of coverage interacts with a variety of paid-leave policies and programs. I hope to unravel some of the mystery and confusing terminology associated with both paid leave and income protection insurance.
Income sources if you can’t work
There are different ways to sustain an income when you can’t work due to an injury, illness or pregnancy. Personal savings, state and employer-paid medical and family leave, Social Security disability benefits, and private insurance are all sources that may be available. How do these sources help, and do they provide enough income to help you live the type of life you want to live?
Do the Research and Weigh the Facts
Disability happens! Even minor illnesses, injuries and pregnancies with a short duration of recovery (such as a knee surgery) can interfere with your ability to work and earn an income. In fact:
- If you were to keep track of the 20 -year-olds in today’s workforce, you’d find nearly 25 percent of them will be out of work for at least one year due to heath conditions before they reach retirement. (1)
- Almost half of American adults indicate they can’t pay an unexpected $400 bill without having to take out a loan or sell something. (2)
- 6 percent of working Americans will experience a short-term disability (six months or less) due to illness, injury or pregnancy on average every year. (3)
Make the Time to Increase your Knowledge
Where will you find the money to live if you lose your ability to work? Understanding the different income sources available can help you make choices during annual enrollment that fit your needs.
Employer-paid leave benefits can provide you with some kind of a paycheck when you can’t work, however, this income may not last long enough to meet your needs. And it’s up to your employer to (a) provide these benefits, (b) determine how long you can receive them, and (c) decide how much you get paid. Some paid leave programs only pay a percentage of your income – and this income is taxable. Sick leave and salary continuation benefits are examples of these benefits.
State- and/or federal-provided leave programs can give you an income while you’re unable to work. These programs include worker’s compensation, Social Security Disability Income, and paid family and medical leave benefits. Worker’s compensation benefits pay a percentage of your income if you have an on-the-job accident or work-related illness that cause you to leave work. Social Security provides long-term benefits if you’re disabled for at least five months, are qualified to apply, and are unable to work at any type of job. If you are approved, you may receive benefits up to the normal Social Security retirement.
State-mandated paid family and medical leave is emerging in a growing number of states. This short-term benefit provides you with an income while you’re out of work for medical conditions, for the birth or adoption of a child, or caring for a family member. Benefits are typically provided from 12 weeks up to 1 year and can cover from 50 percent to 90 percent of your income.
Oregon is the first state in the United States to offer 100 percent income replacement for low-wage workers taking leave for family, medical or safety reasons. Oregon (and New Jersey) includes victims of domestic violence in its paid family leave law, and defines family broadly to include “any individual related by blood or affinity whose close association with a covered individual is the equivalent of a family relationship” – in other words, you get to take time off to care for someone who is like a family member to you.
It’s important for you to check whether you live and/or work in a state where paid family and medical leave is available.
State-mandated disability insurance
State-mandated disability coverage is another source of income available to residents in a limited number of states and territories, including Hawaii, California, New York, New Jersey, Rhode Island, and Puerto Rico. These statutory plans generally provide benefits for six months up to one year. They pay you 50 percent to 70 percent of your income with a weekly cap on the maximum amount you can be paid (for example, $1,216 per week in California and $113 per week in Puerto Rico).
Statutory disability plans supplement your income for a short period of time, so you may want to consider adding other insurance products if you want to receive a larger sum while you can’t work, or in case you are out of work for a longer period of time
Voluntary, worksite or supplementary benefits. Many employers provide options for you to participate in short-term and/or long-term disability insurance. These options are offered by insurance carriers and supplement benefits you may receive from your employer, state and/or federal government programs. You pay the premiums for these optional benefits, although you usually pay less than you would if you bought this insurance on your own.
Short-term disability plans provide benefits for three months up to one year (after you satisfy a waiting or “elimination” period).
It may take a long period of time to recover from certain health conditions and complicated surgeries. In order to protect yourself from this risk, you can carry long-term disability coverage. Long-term disability insurance pays you benefits after you’ve been out of work for three months up to Social Security retirement age (again, after satisfying a waiting period).
Make the Choice to Protect Yourself
It’s important to understand the benefits available to you and how they work together to provide you with an income stream when you can’t work. These benefits help you live your life the way you planned to live it should you become pregnant, ill or have an injury. Making decisions about these benefits during annual enrollment is not always easy, but it is important.
Talk with your human resources area, read the materials available to you before annual enrollment begins, ask questions to clarify your benefits and the cost to you, and learn how all benefits may work together.
Most employers provide online access to information prior to annual enrollment that you can read on your own time schedule. Many employers also offer videos prior to enrollment. And meetings with human resources and insurance professionals as well as online chat may be available to help you navigate your benefit choices.
Remember, what you decide today could affect the rest of your life. Protect yourself and plan for unexpected events. This will help you take control of your financial well-being and help you live a happier life.
1. Social Security Administration, Disability and Death Probability Tables for Insured Workers Born in 1997, Table A.
3. Integrated Benefits Institute, Health and Productivity Benchmarking 2016 (released November 2017), Short-Term Disability, All Employers, Condition-specific results.