How Does Supplemental Disability Insurance Work?

How does supplemental disability insurance work? Can you own more than one polices at the same time? Should you buy it? How much do you need?

Yes, you can buy additional disability insurance. It will be worth it if you need to file a claim after an accident or illness.

Your state or employer-based plan may have several gaps. Learn about these common holes to determine whether to double up and how much extra coverage you might need.

  • How quickly claims payments begin after a loss
  • The amount of income replaced each month
  • How long the benefit lasts while you are disabled

Supplemental Short-Term Disability Gaps

Supplemental short-term disability insurance fills gaps in other coverage you may have through your employer, state, or the federal government. Buying a second or additional policy may be worth it to help you fill one of these possible holes.

  • Small monthly benefit maximum
  • Long elimination period before claim payments begin
  • Brief duration of claims payments

Get a quote for individual coverage to determine whether having multiple policies fits your budget. The extra cost may not matter as much in the event of a claim.

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Supplemental short-term disability for pregnancy is an important maternity leave benefit with two common holes. Women planning to conceive should consider buying a second policy if their existing coverage a long elimination period or does not cover normal labor and delivery.

  • 60 or 90-day elimination periods rarely translate into claims payments for pregnancy-related disabilities. Most women are back to work 6 to 8 weeks after giving birth.
  • Individual plans bought outside of employer groups do not cover the recovery after normal labor and delivery. Only plans obtained through employers include this popular feature.

Coverage must begin before conception. Buying an additional policy is not worth it for already pregnant women. The insurance company will exclude any pre-existing health condition.

Social Security

Supplemental short-term disability fills a large gap with the two Social Security disability programs. Neither federal government entitlement covers temporary medical conditions – an accident or illness that stops you from working for less than one year.

  • Social Security Supplemental Security Income (SSI) pays benefits to disabled adults and children who have limited earnings and resources
  • Social Security Disability Income (SSDI) covers workers who paid FICA taxes long enough and have a medical condition that limits their ability to do any work for at least 12 months.

Therefore, having a private plan in addition to this public program makes a great deal of sense. Many people live check-to-check and do not have emergency funds set aside that will last 6 to 12 months.

State Programs

Supplemental short-term disability fills two gaps in state disability. Yes, you can collect from both state and private policies at the same time – if you bought the extra coverage before becoming sick, hurt, or pregnant, and if your state has a program. Forty-five states do not mandate a program.

Only seven states have temporary disability insurance and the benefits may be too small. Each state places a percentage limit and a hard dollar cap on the monthly amount.

StatePay %Cap*
New Jersey66%$650
New York50%$170
Rhode Island60%$831

* Cap figures as of January 2019

Therefore, adding an extra private policy is worth it for people who need a higher percentage of income replacement. The maximum monthly benefit cap is very low in some states.

Supplemental Long-Term Disability Gaps

Supplemental long-term disability insurance fills gaps in programs addressing temporary medical conditions, and policies limiting the benefit amount. Buying extra coverage may be worth it if you need to extend or increase possible claim payments.

  1. The brief duration of claims payments
  2. Monthly benefit maximum amount

Extended Claims

Supplementary long-term disability can extend the length of possible claim payments. Having two plans can prolong the benefit period up to age 65. This makes sense if the first program stops making claim payments after a set period.

  • Short-term plans last from 3 to 36 months max
  • State temporary programs last for 6 to 12 months
  • Other plans may have 5 or 10-year limits

Therefore, people needing income replacement up to retirement age may need an additional policy if their primary plan stops paying claims before that time. Match the elimination period of the second to the benefit period of the first. Avoid too much overlap if you can.

Additional Benefits

Supplementary long-term disability can also increase the monthly benefit amount. Insurance companies often limit the monthly income amount they are willing to cover for any one person. They are risk-averse by nature.

Therefore, stacking multiple policies together can be a good strategy for high-income earners such as doctors and small business owners. Ideally, you want to replace up to 70% of your income. The 70% figure is key for repaying student loans and staying current on car payments, mortgages, etc.

Expect an application to ask about any existing coverage and the monthly benefit amount. The combined figures should not exceed 70% of income. The second company wants to avoid over-insuring.