FEDweek

Insuring Yourself Against Disability

One form of benefit the government does not offer to its employees is short-term disability insurance. This type of insurance can provide you with income if you use up your paid leave (sick or annual) due to an illness or injury yet you don’t qualify either for disability retirement or FECA injury compensation.

You can choose among various features when you buy disability insurance. Each one will have a cost, though, which you must weigh against the proposed benefit.

Future increase option. This option allows you to buy more coverage in the future, regardless of your health. You might buy some disability insurance when you’re young and healthy so you have the best chance of meeting medical underwriting criteria. You also can buy an amendment to the policy that enables you to increase your benefit level as your income increases.

Partial benefits. Your disability coverage should include a benefit in case of partial disability. You also should have a residual income benefit that pays you a portion of your maximum benefit, based on the percentage of income that is lost due to disability.

If your disability insurance calls for you to receive $5,000 a month, for example, and your income drops by 60 percent, a residual income benefit might pay you 60 percent of the maximum, or $3,000 per month.

Cost-of-living adjustments. Some insurers offer you a deal in which you can pay a slightly higher premium each year, in line with inflation, and your benefit will go up in sync. After some period (perhaps five years), you’ll have to show that you make enough money to merit the higher benefit.

Another option is a cost-of-living rider that will increase your benefits annually, after you’ve been disabled for a full year. This feature can be very expensive so take a hard look at the numbers to see if what you’ll get is truly worth the extra cost.