The Mack Truck that hits you doesn’t always kill you…
I recently met with a client to review his financial portfolio. When the subject of disability insurance came up he scoffed at any need for further review as he, “…Got a great plan at work. I’m not sure of all the details, I just heard it’s a great plan.” Since he brought his company benefit booklet with him, we took a few minutes to see just how terrific it really was.
How many types of company-sponsored disability insurance plans are there?
There are two types of company-sponsored disability plans, short-term and long-term. As the name implies, short-term disability insurance usually replaces all or a portion of your income for a short period, usually, six months. Long-term disability, if the company provides such a benefit, will usually kick in once the short-term plan ends.
Are there any benefit limitations with these company-sponsored disability insurance plans?
One of the major problems with these plans are the limitations placed on your monthly benefit once you exceed a certain monthly income. A common benefit limit is 60% of income, up to $2,500.00 each month. This means if you earn an annual income of $50,000, for example, your monthly income is $4,166.67. When we calculate 60% of $4,166.67, that equals exactly $2,500.00. Which is great if you earn $50,000.00 annually. The problem begins when your annual income exceeds $50,000. If, for example, you earn $100,000.00, your greatest benefit will stay at $2,500. Meaning you are digging a deep financial hole with every company-sponsored disability income check you receive.
My clients’ income hovers around $75,000 each year.
Also, keep in mind these are company-sponsored plans. Unless they are part of a collective bargaining or other contractual agreement, there are absolutely no guarantees the company will provide these plans forever. Due to current economic conditions, several companies have changed or even discontinued company-sponsored health, disability and even life insurance programs to save money and keep the company afloat. Even in those cases where the plans were not discontinued, employees are expected to pick up more of the cost, or accept changes such as higher deductibles, and in some cases, new providers. Several well-known firms took the step of freezing management pensions and offering those affected 401(k) plans.In the case of my client, we agreed to revisit the subject as soon as he and his bride took time to revisit their budget.You see, his company-sponsored plan provided only short-term disability insurance coverage, without a bit of long-term coverage.
And the Mack Truck doesn’t always kill you.
Make it an outstanding day.
Eustace
Eustace Greaves Jr., LUTCF is the Owner and Principal of Greaves Financial Services and The Bridge Insurance Agency in Brooklyn, NY. You can reach him by telephone at 718-783-2722, or by email at [email protected] .
