Your goal should be to replace as much of your pre-disability gross earnings as possible. The maximum amount of company disability insurance you can carry will generally only replace 60–70% of your gross income. You should consider purchasing the maximum amount of disability insurance through your employer, and, if necessary, purchase more insurance from a private carrier.
What If You Need More Disability Insurance?
If you only have the minimum disability coverage provided by an employer or you are self-employed, you can purchase an individual policy from an insurance company, enroll in a group plan offered through an association, or, if available, purchase more disability coverage from the employer. Here are some things to consider:
- Additional disability coverage from an employer is generally the most affordable way to purchase coverage. You're generally eligible to buy additional coverage, if offered, during annual enrollment periods. It is much less expensive than a private policy and often less than association coverage.
- You may be able to get a more liberal definition of disability in a private policy than the one in an employer's plan, but it will cost you considerably more.
- Individual policies are paid with after-tax dollars so the benefits are tax-free to you. If a company-sponsored plan is paid for with pre-tax dollars, the benefits will be taxable to you.
- If you buy an individual policy, it is portable. You will have coverage no matter where you are employed.
- The individual policy is generally not considered in income that will reduce the benefits from a company plan.
If you or your spouse is self-employed, make sure that you have adequate disability coverage.