Disability insurance is probably one of the most important types of insurance that people don’t buy enough of. Why? Some say it is too expensive, they don’t need it, they have it at work, they will never get disabled and any other excuse they can think of. I’d like to share some reasons on why I think anyone working should have disability insurance or purchase more of it.

What is disability Insurance?

Before I start, I’ll share what disability insurance is. Disability insurance is generally split between two types, short and long term. Short term disability will usually pay a benefit after you have been out of work for sickness or injury for 7-15 days. Benefits will pay out up to 24 months maximum but usually much shorter than that. Long term disability will pay benefits after a period of 90 days can pay a benefit up to age 67 in some cases.

Deciding on Disability Insurance Coverage: Do you really need it?

The initial phase of deciding on coverage is to ask yourself a few questions:

If I can’t work tomorrow, how long can I live without an income?
What is the minimum income I need to pay my monthly bills?
If I don’t have any income, who will pay my bills?
How much coverage do I have at work?
Am I eligible for other state programs?
How much do I have in savings?
How long will those savings last without any other income?

What are the odds of you becoming disabled?

I won’t bother with the official stats, but think about your day to day life and possibilities where you could hurt yourself.

I hate to admit it, but New Jersey has some of the worst drivers. If you have spent any time on the Garden State Parkway or AC Expressway you quickly notice that some people are just crazy. You can drive as slow or safe as you want, but sometimes other people will cause accidents and may cause you some physical injury.
Cell Phones and texting: Same as above. People are distracted while driving so accidents from texting and cell phones are becoming more frequent.
Drunk drivers and other impaired drivers
Normal accidents like slips, trips and falls.
Cancer and other sicknesses

My point is, if you think about it, you can probably name many occasions where you have had a close call while driving or otherwise. You only need one bad day to put you out of work for a long time.

Coverage at work:

If you are lucky enough to have coverage at work, see how much you have. It is likely up to 60% of your income to a maximum of $5,000 per month of benefit or something similar. Keep in mind that the benefits will be taxable.

Example 1: Annual income $50,000

$50,000 x 60% = $30,000

$30,000 – $25% in taxes = $22,500 disability income annually

Example 2: Annual income $110,000

$110,000 x 60% = $66,000 – This will max out the benefit so actual amount will be $60,000($5,000 monthly)

$60,000 – 25% taxes: $45,000 disability income annually

Health Insurance Considerations

If you are on disability from work, do you think your health care expenses will go up or down? UP, of course!!! Additionally, you will now be on COBRA or New Jersey Continuation coverage so your employer will not be contributing to your insurance premiums any more. The typical single premium for COBRA in New Jersey is around $500 per month for a single and around $1500 a month for a family. Don’t forget all your extra copays and prescriptions you will now need!

Who buys disability insurance coverage?

Take a hint from the professionals that buy the most disability coverage, physicians and attorneys. They may buy coverage because they have a higher income but I think it is because they see the devastating effects a disability can have on a daily basis. They realize that it can happen to anyone and it doesn’t take much to put you out of work for a long time.

State and federal programs

Most but not all employees in New Jersey are eligible for New Jersey short term disability. This program will pay 66 2/3 benefit to a maximum of $559 per week for 26 weeks.

Some may qualify for Social Security Disability benefits but it can be very difficult to qualify for.

People who may not benefit from disability insurance

If you have enough savings or assets that you can sell off to last you many years without income, than disability insurance may not be a good buy for you. You can essentially self insure so the insurance may potentially be money wasted.

Deciding if you need coverage

This was a very brief summary on disability insurance coverage, but it should at least get you thinking about why or why not disability insurance is right for you. If you stopped working tomorrow and couldn’t pay your bills, you probably need the coverage. If you already have some coverage through work and it is still not enough to cover your bills, than you can always purchase a small policy to supplement that coverage.

Please contact me here for a disability insurance quote or to do a full review on your options.

I also encourage you to do more research at the Council for Disability Awareness.

If you have recently lost your health insurance coverage because you were laid-off or have quit, you have the option to continue your coverage via NJ Continuation or COBRA.

If the company you worked for had less than 20 employees for more than 50% of year in the previous calendar year, than you are eligible for NJ Continuation rather than COBRA.

Qualifying for NJ Continuation – a list of qualifying events

You must be terminated for a reason “other than for cause”
Your hours have been reduced to less than 25 per week, making you part-time.
Death of the employee – dependents may continue
Dependent child ages off plan – older than 26

Who is eligible to continue coverage?

Typically, anyone who was covered by the plan prior to the loss of coverage including all dependents.

How long may you continue your coverage?

Normal Termination: Up to 18 months
For death of primary card holder : Dependents may continue up to 36 months.
Divorce: Spouses that lose coverage through a divorce may continue up to 36 months.
Disability: Employees deemed disabled under the Social Security Act may continue up to 29 months.

Cost

Employees are responsible for 100% of the premium and employers may charge an additional 2% administrative fee. For disabled employees, employers may charge up to 150% of the premium.

When enrolling, the employee has up to 30 days to make first premium payment after notifying the employer they would like to continue the coverage.

When does the coverage end?

There are a few ways the coverage can end.

Employer terminates all the health plans offered.
Continuing subscriber requests termination
Subscriber fails to make timely premium payment
Subscriber exhausts the time allotted to continue(18,29 or 36 mos)

Notes For Employers

Employers must notify employees of their right to continue coverage but not required to notify dependents.
The employer cannot require the first premium payment be made immediately. Employee has up to 30 days to make first payment.

Notes for Employees

You must notify your prior employer you would like to continue coverage within 30 days of receiving your continuation paperwork.
You must make your first premium payment within 30 days of notifying that you will be continuing coverage.
Each month you must make a timely payment and not exceed your 30 day grace period payment window.
Premium payments should be made directly the employer and not to the carrier.

Additional Resources

If you have any questions regarding NJ Continuation please contact me directly and I will do my best to assist you.

Additional information from the State DOBI can be found here.

Glenn Insurance

Do You Really Need Disability Insurance?