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Short term disability - group or private?
Old 11-21-2007, 03:01 PM   #1
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Short term disability - group or private?

Annual open enrollment for benefits is coming up. I have the choice to get either no additional disability benefits (other than what gov't normally pays for disability), or I can purchase supplemental disability insurance that provides 80% of my pay and costs me approximately 1% of my income.

Might I be better off either looking at private short term disability insurance from a cost perspective, or not even getting supplemental short term disability insurance at all?
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Old 11-21-2007, 04:36 PM   #2
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Hey PW,

not even getting supplemental short term disability insurance at all?
Have you established a real need for the insurance? Just because this coverage is offered during annual open-enrollment does not mean that it is a good idea for everyone that is eligible for it. It has been my experience that open-enrollment seems to be a good time for much unnecessary insurance (STD, legal ins, dental ins, etc.) to be offered. Would you be better off in the long run by just increasing your personal savings rate by 1% of your annual income and stashing that in your MMF each month?

You will probably find out that the private rates for this coverage is more costly than your group plan is offering. But, it will probably be worth your wile to investigate it if you are considering the coverage.
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Old 11-21-2007, 05:09 PM   #3
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Originally Posted by mickeyd View Post
Have you established a real need for the insurance? Would you be better off in the long run by just increasing your personal savings rate by 1% of your annual income and stashing that in your MMF each month?
Those are certainly questions I'm interested in answering. I'm not entirely sure what constitutes a "need" for supplemental short term disability insurance. I have enough savings / investments / 401k to cover us on a short-term disability situation if necessary (although I'd rather not cut into investments if not needed).

I think the standard gov't STD is something like 55%? If so, then I'd be paying 1% of my salary for an additional 25% STD pay. Obviously if I get disabled short-term, it's a great deal. When I originally signed up a few years ago, I did the math and realized that if I were short-term disabled once in the next 10 years, then it would have paid for itself.

Of course by that logic, if any person died within X years of getting a ridiculously large life insurance policy, then it would have more than paid for itself.
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Old 11-21-2007, 09:26 PM   #4
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Apologies for a long post, but I want to include details I think are important when evaluating LTD insurance options.

Summary: I recently had to re-think LTD when I changed jobs. My advice based on that experience: do check sources of individual LTD coverage as an alternative to employee-paid supplemental coverage, but don't overlook checking to see if you are eligible for group LTD coverage as a member of a professional society or an alumni association. Both pieces of advice are particularly true if you are young. Also, don't just look at today's premiums in making your decision.

I'm 47, healthy, and the primary breadwinner for the household. DD's are 11 and 18. While we've made good progress toward ER via IRA's, 457's and other pre-tax savings, we're not far enough along in college savings or taxable-income savings to be comfortable with the "save your premiums" strategy suggested above. In my judgment, I need a healthy chunk of life and disability insurance for about another 10 years.

Previous Employer had supremo disability benefits: STD payments (that's short-term disability) kicked in at 100% of salary after a week's absence, switching to LTD at 60% of salary after 90 days. Benefits continue at that rate until age 65. My premium was zero.

Current Employer has no similar STD coverage, just accrued sick and vacation leave as long as it lasts. They do provide all employees with zero-premium LTD coverage, but it's hardly comparable: 50% of salary, a 180 day waiting period and the benefits end 2 yrs after the start of the disability.

Even taking into account that SS disability payments might fill part of the gap after 2 years, if I stroke out tomorrow the free coverage is not enough to keep DW and the DD's on a reasonably steady financial course.

However, as in the OP's situation, Current Employer also offers employee-paid supplemental LTD coverage. The premium rate (call it x) is the same for all employees, young or old. Paying that premium will get me back to the exact same LTD benefits I had with Previous Employer: 60% / 90-day / age 65. Presumably, those premiums will be more or less flat for the 10 years I need coverage.

I compared the "x" premium to individual LTD policies I could find on the internet and to group coverage available to me through a professional society. I found that the group policy would cost a little less than x and the individual policy premium would be x plus some.

Here's what was interesting, however. Because both the group and the individual policies are age-rated (meaning the premiums go up as the policyholder's age increases) Current Employer's supplemental policy gets measurably cheaper than both alternatives when I turn 50. Ten years from now, the gap is much, much wider.

The converse is also true, from what I remember of the premium tables. Younger folks can benefit significantly from the age-ratings. If I was 37 and looking for coverage for the next 10 years, Current Employer's flat premium of X would be significantly higher in the early years, making the group or individual policy a better choice.

YMMV, of course.
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Old 11-21-2007, 11:42 PM   #5
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My wife is in her mid-40s and has enjoyed good health for most of her life. She has always opted to pay for short and long term disability insurance at her jobs, though we never expected that she would use it.

She became ill suddenly this year, was out of work for about 6 months, and collected short term disability payments. Though we didn't actually need the money, we were glad she had bought disability insurance.
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