Insurance companies typically only provide disability insurance up to 70% of an individual’s income.  This is done because of the natural of the insurance.  Disability insurance tends to have a lot of fraud associated with it.  If people could receive their entire income without working, they would more likely to become disabled.  History has shown that when financial crisis hits, or our economy has a downturn, disability insurance claims rise.

Why you will probably never collect from your employer’s coverage

Many employers provide some disability insurance as a benefit with employment.

Watch out for the conditions of this insurance.  Most employers provided disability insurance that says: payout is based upon the individual not being able to work.  They typically do not say: payout is based upon being able to work in the occupation currently held.  This means as long as you can bag groceries, or sweep the floor, they will not pay you.  Since insurance companies typically only provide coverage up to 70% of your income, it is typically recommended that you opt out of the benefit if it says any occupation so that you can purchase your own policy that says payout is based upon you being able to work in your current occupation.  If you can not opt out of your employer’s “any occupation” disability insurance, than take the bare minimum so that you can purchase some “current occupation” insurance.  Below is an example of Joe determining his disability coverage.

            Joe’s annual income is $75,000

Maximum disability coverage Joe can carry ($75,000 x 70% =

$52,500)

$25,000 employer disability benefit

Maximum Joe can purchase is $27,500. 

($52,500 - $25,000 employer provided)

Joe gets injured on the job and is no longer capable of working in his current job.  However, the insurance company reviews Joe’s claim and determines he is capable of working, just not in his previous capacity.  His employer provided coverage will not be paid.  He will only receive $27,500 from his personally purchased policy which stated not capable of performing the duties of his current occupation.

Based on this possibility we recommend that you review your current employer’s provided disability insurance.  If the policy is any occupation, than check with your human resources to see if you can opt out.  The policy is reducing your payout potential if you are capable of doing some type of job.  Sorry to say, most of the time you can’t opt out.  It is an automatic benefit based on the umbrella your employer pays for.  In that case just reduce it to the minimum and shop around for the lowest cost but financial sound company offering “current occupation” disability insurance.