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Do you have enough disability insurance?

Michele Lerner

If an accident or illness sidelines you from your job for an extended period of time, how will you pay the bills? Group disability insurance would provide some income, but not all workers have it. And even if you do, would it go far enough?

"Less than half of consumers are covered by group disability policies at work, either because it's not available or it's optional and they choose not to purchase it," says Steven Weisbart, senior vice president and chief economist for the Insurance Information Institute in New York.

Meanwhile, Ronald Graff, director of individual disability products and planning for MetLife in the Tampa, Fla., area, says a lot of people assume they'd be able to get Social Security disability benefits to cover their expenses if they became disabled. But he says those payments are difficult to qualify for and are typically not very large.

So, you might buy your own private disability policy, particularly if you're self-employed, if your employer doesn't offer the insurance, or if you want more coverage than you can get through work.

Group disability insurance may fall short

"Disability insurance is meant to keep you from financial disaster but not to provide enough income to encourage you to stop working," Weisbart says.

According to Graff, that means you want insurance that would provide at least 50 percent of your usual income in case of long-term disability. A group policy often caps the benefit at 40 percent to 60 percent -- but of your salary, not income. So that benefit can seem skimpy, depending on how much you earn beyond your salary, he adds.

"Workers who receive commissions and bonuses or other compensation should check to see whether their disability insurance covers all of their income or only their base salary," Graff says.

Some group insurance policies also limit the amount of time you can collect benefits. If your policy is capped at 60 months, you could run out of benefits if your injury keeps you out of work longer. "The average disability lasts 32 months, but some disabilities can last a longer time," notes Graff.

Additionally, group disability policies often have a dollar-amount cap on the amount of benefits you can receive annually, such as $10,000 or $20,000, says Brenton Ver Ploeg, a partner with Ver Ploeg and Lumpkin, an insurance law firm in Miami.

"If you're making $100,000 a year, that group benefit isn't going to be very helpful," he says.

Plus, a group policy might be lacking if you're not considered disabled enough.

"Most group disability insurance benefits require someone to be totally disabled and unable to be gainfully employed," Graff says. "Some disability policies also offer a partial benefit if you are working but not to your full capacity because of an illness or injury. This is an important benefit because a lot of disabilities fall into this category."

Private disability insurance can be pricey

Given the shortcomings with group policies, Ver Ploeg recommends that people buy as much private disability insurance as they can afford. "Get a copy of your group disability insurance policy's summary plan description and show it to an insurance agent to find out how much supplemental coverage you can buy."

The premiums for private disability insurance are higher than a group policy and depend on a variety of factors, such as your health, income and age. While prices vary widely, Graff says the average private disability insurance premium is $2,200 per year, and the average benefit from these policies is about $2,500 per month.

Ver Ploeg notes that while group disability insurance is geared toward replacing your lost income, private disability insurance can provide a payout if what's lost is merely your ability to work in your specific occupation.

"The classic example would be a dentist who gets Parkinson's disease," Ver Ploeg says. "He can't work as a dentist, but even if he becomes an investment broker he can receive 100 percent of his disability benefit because he can no longer perform his original job."

Another important distinction, says MetLife's Graff, is that group disability benefits payments are taxable, while private benefits are not. If you have both group and private disability policies, the benefits can overlap. However, Graff notes that "if you also qualify for Social Security disability benefits, your (group) coverage will usually be reduced by the amount of the Social Security payment."

Weisbart says the ultimate issue is that you want to make sure you're protected in case you find yourself unable to perform your job for an extended period.

"People sometimes dismiss the need for disability insurance and focus on life insurance, but the odds that you will have a period of being unable to work because of illness or an accident are a lot greater than the odds of dying while you are still working," he says.

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