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Why a group long-term disability policy may not be enough

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We have spoken here often about how important it is to take advantage of long-term disability insurance if it is offered by your employer. However, once you have this, don't assume that all of your needs will be taken care of if you become disabled. There are limitations to these employer-sponsored plans, and you may need to look at supplementing your group policy with an individual one to ensure that you and your family will still be able to meet your financial obligations if you are unable to work for a period of time.

It's important to carefully review the terms of your plan. You may want to ask a financial or legal professional who works with insurance policies to do this for you. Here are some common terms that can limit the benefits you ultimately are able to receive:

-- For every dollar of LTD insurance benefits you receive, you lose a dollar of benefits from other sources such as workers' compensation and Social Security.

-- If the employer is paying the premiums, benefits are taxed as income for the employee.

-- Most policies pay only 60 percent of an employee's base salary. Further, there may be a maximum monthly benefit. Therefore, for high-salaried employees, the benefit may work out to less than that.

-- Usually, incentive compensation is not factored into the benefit amount. Therefore, if a significant amount of your earnings comes from bonuses, your LTD benefits may not go as far to recouping your income as they were for an employee who relies strictly on their salary.

Taking advantage of your employer-sponsored LTD plan is a good first step to helping to ensure that your family will be cared for if you become injured or ill. However, it's also essential to determine whether you have the financial resources to make up for the gap between what your insurance will pay and what you usually earn. That means reading through the fine print with the help of someone who understands LTD insurance policies. You may then want to consider whether a supplemental individual disability policy is worth the investment.

Source: MD News, "The Have and Have Not of Group Disability Insurance," Eric Kala CFP, CLU, ChFC, accessed April. 21, 2015

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