Private disability coverage worth look

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Dear Dr. Don,
I pay $180 a month for private disability insurance. It has an own-occupation clause and increases with inflation. I’m 31 and have been paying for the insurance for about eight years.

I’ve been wondering whether I’m wasting my money on this insurance. I suffered from a bulged disc this summer, but it didn’t stop me from working as a software developer. I just stood at my desk or, at the worst, lay in bed with my laptop. Also, my employer provides a basic disability insurance plan.

I asked the broker who sold it to me, and he showed me how much better the coverage is than what my employer offers. But I wonder whether that’s really worth $180 a month. Could you weigh in?
— James Joist

Dear James,
If there’s one area where consumers tend to be underinsured besides life insurance, it’s disability insurance. It’s probably because they have a sense that between the group coverage offered by their employer and eligibility for Social Security disability income, there’s no need for additional private insurance policy.

The Bankrate feature “Disability insurance primer: obtaining full coverage” provides a solid overview of the different plans and types of coverage available.

One reason to consider a private insurance disability policy is that employer plans typically aren’t portable. Coverage ends when you separate from service. Also, if you don’t like the terms of the employer-offered group coverage, a private plan might be a good alternative. 

One possible distinction is between “own occupation” and “any occupation” coverage. Not being able to work in your field is a bit different from not being able to work in any job. Cost-of-living adjustments and other policy riders and coverage can also influence the decision to buy a private policy.

Your current coverage seems a little pricey, but I don’t know enough about you, your health, your work history and the policy benefits to advise you whether you should drop this coverage. I’d suggest you work with a fee-only financial planner to review the policy in the context of other coverage available to you and your need for this insurance.