Supplemental Disability Insurance

Supplemental Disability Insurance: How Much Do You Need

That is a good question to think about when you are deciding what to do with your benefits package at work. You have to determine how much you want to add based upon several factors, such as whether the disability payments are subject to tax, thus decreasing the amount of money that you will receive in your check. If employer-paid disability insurance pays for your illness or accident, you will need a different amount in supplemental disability insurance than you would if you paid for the disability insurance yourself. In most cases, employers pay short-term disability and employees pay for long-term disability, so there can be a major difference there. When you go to purchase supplemental disability insurance, you will need to weigh several factors in your determination of need.

Determination of Need

Before you decide of how much supplemental disability insurance you need, you have to weigh how much you will be receiving. If you receive 60% of your regular pay, but it is not taxable because you paid for it in full yourself or saved it in an after-tax account that was subject to taxes already, then you will only need an additional 40% to make up the difference in your pay. However if your payments are subject to tax because the employer paid the premiums and did not include them in your W2 for the year, that will reduce your actual benefit amount to somewhere in the area of 45%, thus you will need to purchase a supplemental policy of about 55% to make up the difference in your pay. In most cases of employer-sponsored programs, the employer pays for short-term disability, and the employee pays for long-term disability, so you may choose to average the two in determining how much of a supplement disability insurance policy you will need in the event of accident or illness.

Why Bother With Supplemental Disability Insurance?

There is nothing that says you have to purchase additional insurance in the form of supplemental disability insurance. That, of course, depends upon whether you can pay your obligations with the primary disability income payments. If you are like most people, however, you live from paycheck to paycheck, and your budget is contingent upon the same amount of income each pay. If you are only going to be out for a few weeks, the difference may not be so crucial, but if your disability is going to escalate into months, or even permanent disability, you may need the supplement disability insurance to make up the difference. Of course, if the disability becomes permanent, eventually the long-term payments may stop, depending on how the policy is written, and in which case, you will have the other alternative, social security, unless you purchased your own long-term disability policy with a lifetime payment scheme.

Choosing Supplemental Disability Insurance Payments

Once you decide that you are going to purchase a policy for supplemental disability insurance payments, you need to decide how much you want it to pay. As already stated, the amount will be contingent upon whether the payments are taxable or not, and how much of your full pay you feel you need. Keep in mind that even if the payments are taxable, your expenses are less when you are not going to work because there are no transportation costs or need to pay for breakfast or lunch in the cafeteria at work or in a restaurant. For females, there is no need for the usual shopping for new clothes, make-up, and other things that are necessities when you are working. You want to supplement as little as possible because the higher the payments, the higher the premiums, so you don’t want to pay for payments that you don’t need.