I Get Short-Term Disability Insurance as a Benefit at Work. Do I Need More Coverage?

The need to purchase supplementary short-term disability insurance depends on a whether the coverage provided through an employer-based policy covers most of a worker’s living expenses. If there is a considerable gap between the income required and the coverage provided, additional coverage may be needed.

Short-term disability insurance is meant to provide a stream of income during times when you are unable to earn a paycheck but don’t fit the bill for long-term or permanent disability coverage.

Some employer-funded short-term plans can be quite generous, offering full income replacement for as long as six months for a wide range of disabilities. Others provide more limited resources. If your employer-sponsored coverage does cover everything fully, then you may be all set. But if not, you may want to consider a supplementary short-term policy.

Family Expenses

Your first step should be to take a hard look at your personal situation. Try to estimate whether your employer-funded plan by itself would give you enough cash to get by comfortably until you get well. Start by listing all of your essential expenses. Food, shelter, and utility costs always seem to come to mind quickly, but don’t forget the long list of other things that have become essential for many families’ well-being. That list may include cable television, cell phone services, computer broadband, and children’s after-school activities, among other things.

Think you can get by with the resources you already have? You’re in very good shape, and by many measures, you’re also in a minority. For example, more than half of U.S. adults say they would be unable to pay their bills or meet expenses if they became disabled and could not work for a year or longer, according to a poll commissioned by the National Association of Insurance Commissioners. Known informally as NAIC, this is the association of state officials who regulate insurance activities around the country.

NAIC has put together a list of considerations for consumers shopping for short-term disability coverage. Among the highlights:

• Young families who rely on both spouses’ incomes should consider both incomes in their calculations. Acknowledging the risk that either partner might become disabled, they should have coverage on both.

• Established families should also factor in their long-term savings plans when they assess their needs. These families should plan to maintain contributions to retirement plans and tuition savings programs even while a wage earner is temporarily disabled.

• Keep in mind that disabilities growing out of preexisting health conditions are typically not covered by new policies, or if they are covered, may result in extra charges.

April 2012 — This column is provided through the Financial Planning Association, the membership organization for the financial planning community, and is brought to you by Haisman Wealth Management, Inc., a local member of FPA.

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