Supplemental disability insurance fills in your coverage gaps in case you can’t work because of an injury or illness and your existing disability insurance doesn’t offer enough coverage.
A group disability policy you get through your employer probably won’t be enough to cover all of your expenses while you’re out of work, which is why getting your own individual disability insurance policy or getting supplemental disability insurance can be helpful.
You can get a long-term or short-term supplemental disability insurance policy, depending on what type of disability insurance you have already.
What is supplemental disability insurance?
Supplemental disability insurance adds to the protection of any disability insurance you already have, like an employer-sponsored disability plan or an individual policy.
It's worth having employee-sponsored disability insurance if your job offers a policy, but you shouldn’t rely on group insurance alone. The benefits you get from an employer-sponsored group disability insurance are capped. Group benefits are taxed if your employer pays the premiums, which lowers even more the amount you can use to cover your expenses.
You can get short-term or long-term supplemental disability insurance to cover your existing policy’s gaps. The type of supplemental policy you get depends on how much disability insurance you already have and what kind of policy it is.
How does supplemental disability insurance work?
Let’s say that the disability insurance you get through your work is a long-term policy that offers limited benefits. You make $150,000 a year and you’re covered for 50% of your salary up to $5,000 a month.
While those benefits might look okay at first, your employer-sponsored disability insurance plan’s cap means you’re only covered for up to $60,000, just 40% of your salary.
Since that wouldn’t be enough to cover your expenses if you couldn’t work, you can get supplemental disability insurance to increase your overall benefit amount to match your income.
The claims process for supplemental disability insurance depends on your insurance company. If you have both your supplemental and regular disability insurance through the same insurance company, the process can vary, you may be able to file one combined claim or you may still have to file two claims. But if your policies are from different insurance companies, you’ll make two separate claims.
Who needs supplemental disability insurance?
It’s worth considering supplemental disability insurance if you want:
Higher benefit amounts: Supplemental disability insurance can help boost your payments if your existing policy doesn’t have high enough benefits to cover your expenses.
Longer benefit periods: It’s a good idea for your policy’s benefit period to be at least five years, but even longer is better. If it’s shorter than that and you can’t change it, a supplemental insurance policy can help cover the gap.
Tax-free disability benefits: Supplemental disability insurance benefits aren’t taxable, unlike group benefits, as long as you don’t use pre-tax dollars to pay for your policy.
Supplemental disability insurance vs. a regular individual policy
Long-term disability insurance is one of the best ways to protect your income, but some people might be better off getting supplemental disability insurance along with their employer-sponsored coverage instead of a regular standalone long-term policy.
Cost: Supplemental disability insurance can be cheaper than an individual long-term disability policy. If you can’t afford long-term disability insurance, you can make the group disability insurance you have stronger with a supplemental disability policy.
Extra protection: You may also want to have supplemental disability insurance if you already have your own long-term disability policy but you don’t think it offers enough coverage.
Convenience: Supplemental disability insurance usually doesn’t require a medical exam, so it can be a quick way to add more coverage to an existing long-term disability policy.
How much supplemental disability insurance do you need?
You should have enough disability insurance to cover your income and expenses if you can’t work. You can figure out how much supplemental disability insurance to get by following these steps:
1. Find out how much coverage you already have
Any existing disability insurance that you already have will affect the total amount of supplemental disability insurance you need to add so that your coverage can replace your income if you can’t work.
Group disability insurance: Many employer plans cover up to 40% to 60% of your income, but remember that your benefits are taxed if you pay for your policy with pre-tax income.
Individual disability insurance: Individual disability insurance benefits aren’t taxed, but usually total up to 60% of your income. Depending on your after-tax pay, this might not be enough to cover your expenses.
State disability insurance: California, Hawaii, New Jersey, New York, Rhode Island, and Puerto Rico all provide temporary disability insurance. The benefits available vary by location.
Social Security Disability Insurance: Disability benefits from Social Security are difficult to qualify for and come with a five-month waiting period. The average monthly benefit is also much less than what most people need.
2. Take your savings into account
Your savings can affect how much supplemental disability insurance to get, especially if you have a lot of money saved up.
You don’t have to use your savings to keep up with your expenses if you can’t work, but you can choose to use some of your savings to offset the high cost of disability insurance premiums.
But if you couldn’t afford to live on your savings for very long, it’s worth getting more supplemental disability insurance to protect what savings you do have when you can’t work.
3. Compare your monthly expenses to your current disability benefits
You need enough supplemental disability insurance to cover the gap between what you existing coverage pays out and your money expenses. These expenses include your mortgage payment or rent, childcare, utilities, and your grocery bills.
How much does supplemental disability insurance cost?
Supplemental disability insurance can be less expensive than a standalone disability insurance policy, which typically costs between 1% to 3% of your annual salary. Your supplemental disability rates will depend on:
The amount of additional coverage you want
Your age and gender
Your health
Your occupation
You can speak to a licensed agent at Policygenius to get supplemental disability insurance quotes today.
How to buy supplemental disability insurance
Here’s how you can get supplemental disability insurance:
Frequently asked questions
How does supplemental disability insurance work?
Supplemental disability is a private disability policy you can buy to fill any gaps in an existing disability insurance policy, like one that you get through your employer.
Is supplemental disability insurance worth it?
It may be worth having supplemental disability insurance to make up for your policy’s weak spots. A supplemental disability policy can give you more benefits, better coverage options, a longer benefit period, and more.
Where can you get supplemental disability insurance?
Most disability insurance companies that offer other types of disability insurance also sell supplemental insurance policies.
