Myth #4 – My Employer Would Pay Me
In this entry, I continue my exploration of the Five Myths about Disability Insurance discussed in an article I found in A.M Best’s Consumer Insurance Center.
Many employees expect that their employers would pay them if, due to illness or injury, they were not able to work. However, only five states (California, Hawaii, New Jersey, New York and Rhode Island) require employers to provide short term disability insurance through payroll deductions. At best, short term disability would only cover a percentage of income for six months. There are no states that require employers to provide long term insurance to their employees.
As a matter of fact, most employers (70%) don’t offer group long term disability insurance to their employees and, if they do, benefits are typically 40-60% of the employee’s income. To make matters worse, the benefits are typically subject to income tax (if the employer pays the insurance premiums).
If you are part of a group disability policy, you’re at risk of losing the coverage if you were to become disabled for a period of time. The major downside of having group disability insurance is that if you are disabled for three to six months, your employer is not required by law to hold your position open for you. If your employer needs to fill your position and lets you go, you would lose your group benefits, including your long term disability insurance.
Proper disability protection typically requires individual disability insurance. Quite often you can supplement your group coverage with an individual plan. Some companies offer provisions to increase the coverage in your individual plan (without proof of medical insurability) if, due to changing jobs, you lose your group plan.