- Your disability coverage from your employer likely covers only your base salary – not your stock awards or bonuses.
- Is 60 percent of your base enough to cover your living expenses and savings for retirement?
- What happens when you change jobs and your new company doesn’t offer disability coverage?
- Did you know you have a 1 in 8 chance of being disabled for more than 5 years at some point during your career?
Steve is a successful marketing director at a large technology company in our area. Lately, he’s been wondering what would happen to him if he had an accident or fell ill and stopped receiving paychecks because he couldn’t go to work.
Steve’s worry was magnified when he learned that his own disability coverage was also based on 60 percent of his base salary, nowhere close to the coverage he needed to maintain the lifestyle to which he and his family were accustomed.
Consider Supplemental Coverage
Most tech professionals have a high standard of living and a unique compensation structure that often makes it worth having a supplemental disability policy. Since highly sought tech professionals typically change employers several times during their careers, it’s possible that your new employer may not offer disability coverage, especially if you work for a startup company or are taking a smaller salary for the first few years. Now, what are you supposed to do? Thankfully, some policies allow you to increase your supplemental coverage to make up for the loss in basic coverage caused by changing jobs. Some policies allow this update to be made without requiring new medical underwriting.
Another common situation I see is $400,000-a-year tech employees quitting their jobs to start their own companies. In most cases, the fledgling entrepreneurs earn significantly less in their company’s early years than they did in the corporate world. But that doesn’t mean the level of disability coverage they are eligible for is only 60 percent of their new lower salary (say $50,000). Many disability carriers will take your earnings potential into consideration, not just what you paid yourself in the early years of running your own company.
Disability insurance can seem expensive (often 1 to 3 percent of your income), but, you have a 1 in 8 chance of becoming disabled for 5 years or more during your career, according to AARP. When I read statistics like that, I look around the conference room and count the number of people at the table. If there are more than eight, then chances are one of them will likely wish they had proper disability coverage at some point in their career. That can be an alarming thought!
Plan With Confidence
At Soundmark, we’ll review your life and disability coverage regularly to ensure you are properly protected and have no gaps. If you or someone close to you would like a review of their financial plan or their insurance coverage, please don’t hesitate to contact us.