Should you increase your disability coverage?
Now, more than ever, loss of income has been top-of-mind for workers in America. While disability insurance doesn’t cover the closure of a business due to a pandemic, mass quarantine has prompted many to re-evaluate their finances. Now is a great time to review your insurance coverage in order to make changes when things “return to normal.”
Disability Benefits Do Not Automatically Increase with Raises
When your house increases in value, it’s easy to see that your insurance coverage needs to increase as well. You should think the same way about your disability insurance when your salary increases.
Your disability insurance benefits do not automatically increase when you receive a raise. The benefits are based on your salary at the time of your first enrollment, and only change when you request an increase. When you receive a well-deserved raise, be sure to talk to your account manager at your enrollment about increasing your benefit amount as well.
Are you currently receiving the maximum benefit?
Even if you haven’t received a raise, it’s important to evaluate your benefit amount to ensure you have the right level of coverage for your salary. Remember, disability insurance is not designed to replace your entire salary. On average, an increase in a coverage bracket typically increases your monthly premium by only $5-8 per month.1
Another way to maximize your coverage is to consider optional riders on your policy. A rider is an add-on plan to your existing policy and offers additional coverage. Some plans offer riders for accident insurance benefits, COBRA, and more. Be sure to ask about riders during your next enrollment.
Consider Your Elimination Period
When deciding your disability benefit amount, you should consider the elimination period (also known as a waiting period) that must expire before benefits are paid. This will impact your financial planning because you won’t receive benefits during that time. You should understand what your elimination period is and plan for that period without income.
Understand Policy Offsets or Other Eligibility
When considering your need for coverage, find out if your policy has provisions for adjustments, limitations and exclusions or plan offsets. These may include rules for other sources of income and how your disability benefits will offset against those income amounts. Some examples include Social Security disability benefits, state disability insurance, and more.
While you should educate yourself on these offsets, you should be cautious to reduce your benefits because an offset may apply. The offsets may not be guaranteed. In situations where you may not qualify for other income, you would want to ensure you have the maximum benefit.
Know When You Can Make Changes
Many employers require that insurance plans and premiums can only change during your annual enrollment, or if you experience a qualifying life event such as marriage or a birth of a child. If you receive a raise and it isn’t time for your annual enrollment, create a reminder for yourself to ask your account manager about increasing your benefits when the time comes.
This blog is up to date as of April 2020 and has not been updated for changes in the law, administration or current events.