Open-enrollment season is here — and it’s not just about health insurance. You also need to think about what kind of life and disability benefits your employer offers.
Unlike health coverage, these other insurance benefits are almost always provided free to the employee, which makes them practically a no-lose perk — and one you may not even have to register to get. If there’s any downside to these coverages, experts say, it’s that they may make workers complacent about their long-term insurance needs, and so risk being underinsured.
Here’s a plan to fight complacency, while it’s still easy to adjust your coverage — with many employers’ open-enrollment periods running through mid-December. Follow these three steps to establish what, if any, coverage you get from work, assess whether it’s enough, and take action if it isn’t up to the mark.
Confirm any workplace benefits you receive
Your company benefits booklet or online benefits portal should detail the life and disability insurance you receive. If the coverage isn’t clear there, call your HR department.
Life insurance is the most likely benefit. Sixty percent of U.S. workers get some coverage through work, according to the Bureau of Labor Statistics. Employers typically provide a life-insurance policy with a death benefit of $50,000, $100,000, or the equivalent of the employee’s annual salary.
Forty percent of workers get disability insurance from their employer, a proportion that’s been slowly edging up in recent years. One or two types of coverage may be provided.
Short-term disability payments kick in after the employee’s sick leave (or, at some companies, total Paid Time Off days) are exhausted. In five states — California, Hawaii, New Jersey, New York, and Rhode Island — and Puerto Rico, employers are required by law to provide short-term disability coverage. (It may or may not be free to the employee; the laws that mandate payments also allow employers to withhold up to 1% or so of workers’ earnings to help cover the program’s cost.)
Long-term benefits kick in after short-term disability expires, which is usually within three to six months. If you have no short-term coverage, you’ll typically have to wait that three to six months without benefits before long-term payments kick in.
Disability insurance typically provides 50% to 60% or so of the employee’s weekly gross income, although that percentage can be as low as 40%, especially for short-term disability benefits. The payments are taxable, unless your employer chooses to cover the tax liability on them for you.
In the jurisdictions where STD is mandated, maximum benefits range from relatively generous (up to $1,000 a week in California and $850 in Rhode Island) to middling (a maximum of about $650 weekly in Hawaii and New Jersey) to minimal (less than $200 a week in New York and Puerto Rico).
STD payments usually run for between three and six months. Depending on the employer, long-term disability benefits may last until you’re able to go back to work, for only a certain number of years, or until you turn 65.
Compare what you get to what you need
When it comes to life insurance, what you get from work is helpful but likely falls short of what experts recommend.
Workplace life insurance benefits usually total no more than a year or two of earnings, while financial advisors typically counsel insuring your life for at least six times your annual income. An alternative approach focuses on investment and debt. For example, Erin Ardleigh, president of Dynama Insurance, a Manhattan-based independent insurance brokerage, advocates buying coverage sufficient to create an income stream that would replace 50% to 75% of your income, as well as pay off 50% or more of debts and obligations such as the mortgage and college for children.
The gap between employer benefits and your needs may be smaller for disability insurance, especially if your plan provides relatively generous long-term benefits — in the range of 60% of earnings. Obviously, it’s ideal to have disability insurance that fully replaces your income, as some advisors, including online insurance broker Policygenius, recommend. However, insurance-settlement company Mason Financial says coverage that provides 70% replacement represents a good compromise between policy cost and coverage.
One other caveat as you assess if and how workplace life and disability meets your ongoing needs. When the job ends, as a rule, so does your workplace coverage — although some workplace life insurance can be “ported” with you when you leave the job, although you will need to take over paying its premiums.
Buy additional coverage as needed
The group life insurance plan you get from work may allow you to purchase supplemental coverage over what the employer provides. However, depending how much more you request, an insurer may require proof of good health, according to John Dooney, HR Knowledge Advisor at the Society for Human Resource Management.
Even if you can top up your work coverage, and take it with you if you leave your job, it’s worth shopping around in the open market. A young and healthy person may find better and more affordable coverage by comparison shopping with various insurers rather than simply converting a group policy to an individual one, says insurance broker Ardleigh.
Policy costs can vary widely, depending on factors such as the duration of policy, gender, age, health, state of residence, and insurer. Because there are so many options, Ardleigh recommends comparing at least two different term lengths (such as 20- and 30-year term) from at least three different insurance companies. This allows you to compare costs among different companies and coverage levels, she said.
Term insurance is recommended by many experts over whole life insurance, in part because term policies are usually more cost-effective. (Your employer coverage will also be a term policy, rather than of the whole life type.)
You can also buy both short-term and long-term disability insurance in the marketplace, to supplement what you already have from work or as your only coverage. But short-term policies are harder to find and provide less value, according to online insurance broker Policygenius. The site says monthly premiums for short-term disability are relatively close to those of long-term disability, which provides more coverage — and so is the more cost-effective product.
Disability insurance can be pricey, even if you’re only supplementing what you get from work. The cost is determined by coverage amount and duration, along with other factors like your health, gender, and age — with higher premiums for older workers. Policygenius says most people should expect annual premiums of 1% to 3% of the income you want to replace. So even a policy that provides a benefit of $25,000 a year could easily cost $500 a year, and replacing, say, 70% of a $75,000 income might cost $1,500 or so.
You must also specify how many years of disability you want; the more coverage you purchase, the more minimums will edge towards the higher end of the range. With the average disability causing three years of lost work and income, Policygenius recommends buying at least five years of benefits — with coverage until retirement the best bet, if you can afford it.
Before you buy additional disability insurance, look into whether you might qualify for payments under Social Security Disability Insurance (SSDI). (Unlike regular Social Security, SSDI is available even to those who are not yet of retirement age.) Temper your expectations, though. To receive SSDI, you must be entirely unable to do any work, a stricter standard than many group and individual policies impose. And while in theory, you can collect both SSDI benefits and those from private or group disability policies, some private policies limit that, according to disability-benefits-help.org. The policy may require that you apply for SSDI and, if you’re approved, will then pay you only the difference between the SSDI benefit and the policy’s benefit.
How important is it to have both adequate disability coverage as well as life insurance? Very, according to Paul Sydlansky, a financial planner with Lake Road Advisors, based in Corning, N.Y. “Where you might only need life insurance if someone financially depends on you and would suffer a hardship if you passed away,” the company advises, “almost everyone with a job needs some form and amount of disability insurance.”
Cheryl Winokur Munk contributed to this article.