Life is unpredictable. We have well-laid plans but life gets in the way, or we run into a situation where we need protection to make us whole. In terms of workplace coverage, we assume that either short-term disability (STD) or long-term disability (LTD) insurance will provide all we need in the event of an injury or disability.
Both STD and LTD can provide valuable and much-needed benefits at time of need, but they may fall short depending on the severity of our need. In certain cases, Individual Disability Insurance (IDI) may be able to provide the additional protection you need.
Building a Foundation with Short-Term and Long-Term Disability
Disability is unpredictable and can happen to anyone at any age. In fact, the Social Security Administration reports more than 1-in-4 20-year-olds will become disabled before reaching retirement age. Short-term and long-term disability are great foundational tools to help protect a portion of your income when injured or facing a disability.
However, they both fall short when it comes to making you whole, income-wise. “It (STD and LTD) typically pays 60 percent of your compensation, up to a specified maximum benefit amount and time period during which you can receive benefits if disabled,” says Kristin Pagliero, Market Education Manager in IDI business operations at Unum. Yes, this does provide some level of protection, but it may also leave gaps, have caps on benefit levels, create taxable situations and leave some individuals short on compensation.
While great as a foundation, there is often a need to bridge the shortage from STD or LTD limits.
How Does Individual Disability Insurance Work?
“IDI, also known as supplemental long-term disability insurance, is quite simply an extension of your long-term disability plan – it can pay an additional monthly benefit if you’re out of work due to a covered illness or injury and can cover income from bonuses, commissions, and other incentive pay,” says Pagliero. For those who need more than 60 percent of their typical income in the event of disability, this can provide great peace of mind as it is designed to help supplement benefits received through LTD coverage.
You won’t receive benefits right away with IDI, as it operates like any other disability coverage. According to Pagliero, “after satisfying the elimination period set out in your plan, you would begin receiving benefits.” Pagliero also adds “the length of time you can receive benefits depends on your policy. Some policies will pay benefits until you turn 67. Others have maximum benefit periods as short as two years.”
Given the variances, it pays to research your policy, so you know what’s covered and for how long.
Finally, you can purchase IDI coverage through either your employer or from a secondary provider. “There are, however, significant advantages to purchasing a policy through your employer, including discounted rates, higher benefit maximums and income replacement, enhanced plan features and optional benefits,” says Pagliero. For this reason, it may make sense to start with your employer when seeking out coverage.
Who Needs Individual Disability Insurance?
We all have our own unique needs when it comes to any kind of insurance coverage. IDI coverage may be suitable for any type of employee, but according to Pagliero, “IDI is primarily designed to support the needs of the executive and professional markets.”
In short, IDI is ideal for those who earn bonuses, commissions or other types of incentive pay as a part of their overall salary. That being said, it does not mean IDI coverage is limited to higher paid individuals. “Generally speaking, however, anyone with a gap in coverage due to LTD benefit maximums or uninsured earnings may be eligible for IDI coverage,” says Pagliero. If any of your compensation is tied back to performance of yourself or your company, it pays to look into IDI coverage to see how it might be able to help in the event of disability.
Do You Really Need Individual Disability Insurance?
Disability coverage is great, but stopping short without having IDI may unintentionally leave you out in the cold. Not only does IDI provide coverage if you run into a maximum benefit issue with LTD, but it’s also portable so you can take it with you if you leave your current employer.
The last thing you want when dealing with an injury or disability is to have to wonder how you’re going to pay your bills. “The benefit (IDI) helps you get closer to your former take-home pay so you can focus on recovery, not worry about finances,” says Pagliero, pointing out the benefit of looking into coverage.
We never know what may happen in life. Having the proper insurance coverage can go a long way toward allowing you the ability to focus on recovering without worrying about how you’re going to make ends meet.