Supplemental disability insurance refers to additional disability coverage you may obtain on top of another active disability policy.
It is commonly used by individuals who already have group disability insurance through their employer at work, but would still like to obtain additional coverage by purchasing an individual disability policy from a private company. Or, a person who already owns their own individual disability insurance policy may refer to new group disability coverage obtained through work as their supplemental disability coverage.
Regardless, having two sources of disability insurance coverage can work together to protect a higher percentage of the policyholder's income.
People who may need supplemental long term disability insurance include those to need to extend the monthly benefit maximum and/or how long they receive benefits.
Insurance companies often limit the monthly income amount they are willing to cover for any one person. Therefore, high-income earners dependent on a group policy will only have a fraction of their income replaced.
Supplemental long term disability coverage can also extend the length of possible claim payments. Group plans may limit benefits to five to 10 years. Government programs typically cap benefits at a year.
If your only coverage is a group or government plan, you will need supplemental long-term disability to extend your benefits to age 65.
Most short term disability insurance policies are offered as part of group coverage. If you get short term disability benefits through an employer or government, there will likely be gaps in your coverage. These gaps may include a small benefit maximum, extended elimination period, or short benefit period. A supplemental disability insurance policy can help fill those gaps.
Supplemental short term disability insurance is often a maternity leave benefit. But it also has holes.
One is the lengthy elimination period — typically 60 to 90 days — which rarely enables women to collect on claims for pregnancy-related disabilities. Also, individual plans typically do not cover recovery from normal labor and delivery. This is only offered through a supplemental plan through an employer.
Supplemental disability insurance may be worth the cost if you are depending on Social Security Disability Income (SSDI). That’s because the federal program only covers disabilities that last longer than 12 months. Plus, most people who file a claim for SSDI are denied benefits. Therefore, you will likely need a supplemental policy in addition to relying on public programs.
If you are under the age of 65 and on Medicare because of a disability, you may be able to obtain Medicare supplemental insurance. This is called Medigap insurance. It can help cover some health care costs that come with original Medicare.
Unfortunately, federal law does not require insurance companies to sell Medicare Supplement Insurance. A few states, however, do have this requirement, including:
California, Colorado, Connecticut, Delaware, Florida, Georgia, Hawaii, Illinois, Kansas, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, New Hampshire, New Jersey, New Mexico, New York, North Carolina, Oklahoma, Oregon, Pennsylvania, South Dakota, Tennessee, Texas, Vermont, and Wisconsin.
According to Medicare.gov, if you have group health insurance through an employer or union, you likely don’t need Medigap. That’s because your employer plan typically provides similar coverage to what you get from Medigap.
Supplemental disability insurance is designed to complement coverage that only meets a fraction of a person’s needs. This includes disability programs offered by employers, unions, and the government. These group and government programs are designed to only provide a minimal amount of disability coverage. This makes supplemental disability insurance almost necessary.
On the other hand, an individual disability policy can be tailored to meet the coverage needs of the applicant. With more comprehensive coverage, a worker likely doesn’t need to spend the extra cost on supplemental disability insurance.
The information and content provided herein is for educational purposes only, and should not be considered legal, tax, investment, or financial advice, recommendation, or endorsement. Breeze does not guarantee the accuracy, completeness, reliability or usefulness of any testimonials, opinions, advice, product or service offers, or other information provided here by third parties. Individuals are encouraged to seek advice from their own tax or legal counsel.