Get disability insurance if you're able
By Pat Curry • Bankrate.com

When James J. Taglia started working for Presidion Solutions, a Michigan-based professional employer organization, he took all the short-term and long-term disability insurance the company offered, and then bought extra long-term coverage through a private agent.

"In terms of wants and needs, personally, I think it's a need," says Taglia, the company's vice president of employee benefits. "It's that important to provide my daughter's education and pay the mortgage. I need to provide for my family if I am disabled."

As a worker, you're three to four times more likely to be disabled for 60 to 90 days than to die before age 65, says Matt Tassey, chairman-elect of the Life and Health Insurance Foundation for Education. Most employers offer disability insurance, which provides you with income if you have an accident or illness that keeps you from being able to work. Yet only about 25 percent of employees carry the insurance, he says.

"Many people still think they can rely on Social Security. That's not a healthy thing, particularly for higher compensated people," he says. "It's critically important. If you can buy it, do it when you're young and healthy. We have a concert cellist right now who can't get it. "

Here are some basic things to understand about disability insurance:

The coverage is divided into two types: short-term and long-term. Short-term coverage usually ends at six months. You should ask how the coverage coordinates with sick time or paid time off and worker's compensation if you're injured on the job.

The long-term benefits usually are paid for one, two, five or 10 years, or up to age 65, depending on the employer's plan, says Guy Bertsch, vice president of Core Market Development for UnumProvident, one of the nation's top providers of company-sponsored disability insurance. Many employers will provide short-term disability as a free benefit and offer long-term disability as a benefit you can buy.

The coverage is based on your income, but doesn't come close to replacing it. It's typically 60 percent of your salary, Tassey says. It's done that way on purpose. It's enough to pay your essential bills, but small enough to give you a strong incentive to get back on your feet and back to work.

If you're getting other kinds of benefits, such as worker's compensation or Social Security, that will reduce the amount of your disability insurance benefit. For instance, if you're eligible for $5,000 a month in benefits and worker's comp is paying $2,500, your disability insurance will kick in the remaining $2,500.

Disability insurance doesn't have a deductible like other kinds of insurance. Instead, it has an elimination period. That's the number of days you'll wait until coverage starts. It's usually measured in 30-day increments. The longer you handle things on your own, the less you'll pay for the insurance.

The important thing to understand about the elimination period is that you don't get your first check on the first day coverage starts. If you have a 30-day elimination period, the insurer starts paying into your account on day 31, and you'll get your first check on day 61. So, get that emergency fund in place. Bertsch says the typical waiting period for group plans is 90 days. In most cases, employees aren't required to use other time-off programs first before filing for disability.

Ask if the coverage is for "own occupation" or "any occupation."

"Own occupation" means that you're covered if you can't do a job in your own field. "Any occupation" means the coverage only kicks in if you can't do any job. That's the criteria for Social Security disability coverage. Also ask if the policy has a waiver of premiums. That means that if you file a claim and are getting checks, a portion of that income doesn't go to paying your insurance premium.

If possible, you want to pay for the insurance yourself instead of having your employer pay it. If your employer pays for it, you'll have to pay income taxes on any money you're paid, says Alan Ziegler, 2002-2003 president of the Society of Financial Service Professionals and a Certified Employee Benefits Specialist. If you pay it yourself, it's tax free. You may also be able to take the coverage with you to your next job.

-- Posted: May 20, 2004