Wednesday, June 08, 2005

How Much Disability Insurance is "Enough"?

Research shows the following about employer-offered STD (short term disability) and LTD (long term disability).

Disability Insurance: ( 2003) In small private firms, fewer than one-quarter of workers have short-term disability coverage (22%), and just 13 percent have long-term disability income insurance, according to the Bureau of Labor Statistics.

Half of workers at large employers (100 or more employees) have short-term disability income insurance (47%), and more than one-third have long-term disability coverage (40%).

Disability coverage (American Council of Insurers 2004) 82% of employees are lacking in adequate coverage.

The Society of Actuaries says that only 2.5% of employees have individual disability coverage (i.e., paid for by the employee and not the company).

If you have already read the other blogs about Disability insurance, you know how important it is to know about what types of insurance you have, and how much each insurance will pay out, if and when you need it.

Now, you know how much your STD and LTD will pay out each month. The question is, how much SHOULD YOU HAVE?

There are some simple ways to determine just how much is "enough", and it varies for each family.

1) Sick leave - maintain at minimum 5 days, and, at best, 10 days. In this way, you will be able to meet a usual time gap before your STD kicks in.

2) STD - most STD policies cover up to 26 weeks. To make sure that you have "enough" STD TIME coverage, the weeks should cover your LTD's elimination period.

3) LTD - timewise, you will want your LTD plan to cover you until your retirement age. (Note, not all retirement ages are at 65. The retirement ages are increasing; make sure that you know your specific retirement age.)

Now, let's talk about money. To calculate how much money is needed by you and your family, consider the following.

For each month, note the following.

1) OUTGO Your "must pay" expenses (including, but not limited to the following: house payment; utilities; car and gasoline; medical expenses; any child care; any loans, credit cards, etc.)

2) INCOME ON DISABILITY Add together any income other than yours (i.e., spouse's income) plus whatever you will receive on a monthly basis from your company-paid STD and/or LTD. Add to this amount whatever savings you have, and how long this would last.

The gap between income on disability and outgo would be the amount of income that you might want to offset with a private LTD policy.

If you have additional questions on this topic, please feel free to write on this blog, and your questions will be answered.

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