Prepare for the Unexpected

By Scott Culver
Communications Specialist
WEA Trust

April 2002

When we get sick, we may need to take time off to recover. Our employer expects occasional absences because of illness and provides paid sick leave for these instances.

But what would happen if an illness or injury left you unable to work for several months or a year or longer? Obviously, going without a paycheck during this time would have devastating financial implications.

While your health plan covers the medical bills associated with a disability, it does not replace lost income. With disability insurance, you can protect your financial well-being when an injury or illness leaves you unable to work for an extended period. A group long term disability (LTD) plan pays you a percentage of your salary, typically between 60% and 90%; most WEA Trust plans provide a 90% income replacement benefit.

The odds of you becoming disabled are one in five, according to a U.S. Census Bureau study, but disability occurrences are unpredictable, striking both younger and older employees. The adjoining chart shows LTD claims paid by the WEA Trust, based on age, from 1995 to July 2001. While 63% of the Trust’s claims were for employees between the ages of 41 and 60, 27% of the claims were for employees between the ages of 21 and 40.

The types of disabilities vary, ranging from back injuries to cancer and heart disease to Alzheimer’s or Parkinson’s disease. The adjoining graphic depicts the Trust’s disability claims by diagnosis over the past six years and portrays the variety of disabling conditions employees can suffer.

While any sound financial strategy includes life insurance, many financial planners rate disability coverage as being just as important to one’s fiscal health. According to the American Council of Life Insurers (ACLI), a 35-year-old is six times more likely to become disabled than die before he or she reaches age 65.

How coverage works
A disability insurance plan works differently than a health insurance plan. A disability plan includes an elimination period – a specific period of time, between 30 days and a year – before you become eligible to receive benefits. In essence, the elimination period is a deductible expressed in terms of time instead of dollars.

You can use sick leave, tap your savings, or purchase short-term disability insurance to cover expenses during this period. Many people coordinate a short-term disability plan with their LTD elimination period, ensuring an uninterrupted flow of income during a disability. In these cases, LTD starts paying a portion of your salary after the elimination period has expired.

A short-term disability plan makes sense for people who have little or no sick leave available. For longer-tenured public school employees who have accrued significant sick leave, a short-term disability plan is likely unnecessary.

Disability benefits are paid once there is sufficient evidence to show you are disabled and have lost wages because of disability. If, after a period of disability, you return to your regular full-time job, your LTD benefits will stop. If you’re able to return to work part-time at your former position or full- or part-time at another position, you may qualify for some LTD benefits, depending on the specific plan.

In general, benefits from an LTD plan are integrated with Social Security Disability Insurance (SSDI) and Wisconsin Retirement System (WRS) disability benefits. If your injury or illness is work-related, you may be entitled to worker’s compensation benefits. All governmental benefits reduce the benefit available through your group LTD plan.

It’s easy to overlook disability insurance. When looking at a benefits package, health, dental, life, and long term care often draw the most attention. However, disability insurance also plays a prominent role in protecting your financial well-being. Think of how your lifestyle would change if you were forced to go a year or more without a paycheck. Disability coverage provides the peace of mind that you can still receive a steady income if you’re unable to work for an extended period.

Posted March 11, 2002