What Else You Should Be Looking Out For
Updated: Sep 17, 2020
Group LTD insurance is just the first step in protecting your income.
You need financial security, not just wages.
Having group Long Term Disability (LTD) insurance is a terrific foundational step in protecting your income, but how carefully have you thought about your needs? Living on group LTD benefits is like living on part time wages. The typical LTD benefit is 60% of base earnings, reduced by formulaic adjustments (that includes Social Security). In addition to losing the other 40% of your earnings, you would lose your employer's contribution toward your medical insurance premiums, future retirement contributions, and possibly job security.
Assuming COBRA medical coverage is available, you wouldn't need to shop for individual health insurance for the first eighteen (18) months, but you would still feel the sting of having to pay the full freight of your medical insurance premium, plus perhaps another 2% administrative fee. The loss of the employer contribution means you'll be facing a corresponding increase in your expenses. According to the Kaiser Family Health Foundation, the average family health insurance premium paid through employers is $20,576 per year, with $14,561 of that paid by employers. And that's before future increases and the transition to individual coverage.
401(k) retirement contributions, unfortunately, do not continue during a period of disability. This creates problems down the road by having to work longer or live on less. Old fashioned pension plans may offer continued accruals during periods of disability, but as pensions have given way to 401(k) plans, the risk of disability has shifted to individuals.
Job security and coverage security are tied together with group insurance, which limits your options in the return to work stage. With a medical condition present and probably needing to be managed, you'll want to have choices in how you work without compromising security of coverage. Returning to work for your current employer may seem like the default plan, but it may not be possible if under-performance is likely or if your position was filled while you were out. Instead you may decide to become self employed or work for a small company. You may decide to work part time or change occupations within your industry. You can't possibly know what that would look like, but it would be wise to assume there will be changes; and given your very high risk at this stage, you'll care about where your disability coverage will come from.
Protect Your Spouse's Earnings
If your spouse is expected to generate significant earnings over course of his or her career, it could be one of your largest assets. Your LTD coverage doesn't help to insure that (spousal coverage does not exist with LTD), but he or she may have their own employer provided coverage which would help reduce the exposure. If the exposed compensation projected over the remaining expected working years is significant, it should be insured just the same as you would insure for any other major asset.
Reduce the Burden on Others
If you were disabled severely enough to be dependent on others, even 100% income replacement might not be enough due to the burden that severe disability places on loved ones. It might not bother you, or you may have a spouse with the right personality and experience to know what they're in for; and if that's the case, your disability income benefits may be sufficient. Otherwise, you'll need more than 100% in order to pay for hired help or compensate family for their time and lost wages.
Reduce the Burden on You
If your spouse is ever diagnosed in the future with something that makes it impossible for him/her to remain independent, you may need to take time off work. The financial concern is how long this will last. Being financially prepared for years of care-taking mostly involves having enough insurance on your spouse to compensate you for what you would have otherwise earned; or to offset the expense of a hired care-taker.
Caring for Your Parents and Other Loved Ones
Is there anyone else that you would be compelled to financially support - or suspend your career for - in order to take care of? If your parents are aging, consider your obligations.
Paying for Life Insurance During a Period of Disability
Does your existing life insurance waive the premium if you are disabled? Considering the difficulty of making ends meet on disability benefits, and the potential for billing oversights, this feature is well worth having. Without it, the financial obligations your life insurance is supposed to fulfill are at risk.
Be Prepared to Raise Yours Kids Alone
If your spouse dies or is disabled, count on spending more time with the kids and less at work. Exactly how much time is a matter of values, but it is safe to say that inexperienced parents underestimate the load. Your spouse should be insured for your anticipated loss of earnings, including the impact on your career trajectory.
Cancer will turn your life upside down
Financially, cancer is tough because due to the many needs that come up that are not covered by medical insurance. There is a lot of time spent getting labs done, doctor visits, screenings and procedures which force time time off of work, not only for you but the person who accompanies you. Lost wages add up fast and so do the medical bills even if you have disability and medical insurance in place. Perhaps the most expensive of these are therapies and tests your medical insurer declines to cover.
Protect Retirement Assets From Disability
When forecasting your age of retirement, be sure to account for the possibility that severe disability of either spouse could drain assets quickly due to care-taking expenses. This could ruin the healthy spouse's living standards for a long time to come. The financial exposure is at it's height during the working years and early retirement.
Get it All Done at Once
Is a sufficient amount of life insurance in place on you? You should have enough life insurance to (a) clean the slate of any debts (b) fund any major financial obligations such as kids' education and (c) allow survivors to be financially secure. If not, any additional life insurance should be applied for simultaneously with other insurance recommended as a result of this review so that you don't have to go through the medical underwriting process twice.
Act While You Qualify
For all of the above items, do not underestimate the difficulty of the situation or wait too long to get the ball rolling, because the solutions depend on being medically insurable.
Insurers are well within their rights to decline to issue coverage for vague reasons, such as unexplained symptoms.
Let us know what topics you'd like to plan for, and we'll recommend solutions.