Employer-Paid Disability Coverage Is More Scarce

The percentage of companies that paid all or part of the cost of workers' private long-term disability insurance fell to 48 percent last year from 59 percent in 2002, The Wall Street Journal observed recently, citing LIMRA, an association of financial-services and insurance companies. That puts the onus on employees to purchase richer benefits if they choose.

Beware, though: both employer-sponsored group coverage and individual disability policies may exclude bonus compensation. Another common exclusion: disability that prevents you from performing your current profession or role but leaves you still able to work in a different role whose compensation might amount to a mere fraction of your current income. To make sure the coverage you're considering will truly protect a decent slice of your income if you become disabled, "read the fine print" before it's too late, the Journal advises.

You'll Need More Than Social Security Disability

"The best disability insurance plans will.... take a close look at your total compensation, including bonuses earned over the last 2-3 years to derive the maximum benefit," writes veteran insurance professional Gary Weiss. Benefits typically last until retirement age.

Most private disability policies require you to apply for Social Security Disability Insurance (SSDI) benefits from the U.S. government as well, then subtract any government payout from the insurance payout. Relying solely on SSDI payments to carry you through an extended disability can be dicey. For one thing, the benefits are available to those with a condition that either is expected to leave them unable to work for at least a year, or is terminal. For those who do qualify - around 36 percent for the first application - the payout averages about 40 percent of predisability income. The share will be smaller for high earners. Moreover, the review process may take two to four years before benefits are awarded, according to disability insurer Allsup of Belleville, Ill.

Usually it pays to go with employer-based coverage that pays some or all of your disability insurance premium costs. Employer plans let insurers spread risks over a larger group and thus contain costs. With employer-sponsored coverage, look for both short-term insurance, which tends to last a few months, and long-term, which typically starts paying only after a set time period of 90 to 180 days. In some cases you can pay for the coverage on a pretax basis.

If you decide to buy an individual long-term disability policy designed to fit your own needs, initial premiums will be set based on factors including your age, health status, and occupation. Long-term disability insurance pays some percentage of your predisability income, often 60 percent.