Key Takeaways:
- Does employer long-term disability insurance really cover 60% of your income? Not necessarily for the entire benefit period. Some employer LTD policies initially pay 60% of “covered earnings” but reduce that percentage after a specified period.
- Does a $15,000 monthly disability insurance maximum mean you will receive $15,000? It depends. The $15,000 figure may represent the maximum available benefit rather than the amount you qualify to receive. Actual payments depend on your eligible income, policy provisions, offsets, and taxes.
- Can employer disability insurance benefits decrease after two years? Yes. In the policy reviewed, benefits dropped from 60% to 20% of income after 24 months, reducing the initial calculated monthly benefit for someone earning $240,000 annually from $12,000 to $4,000 per month.
- Can an employer disability insurance policy change from Own Occupation to Any Occupation? Yes. Some employer LTD contracts change their definition of disability during the benefit period, affecting continued eligibility for benefits.
- Can individual disability insurance supplement gaps in employer LTD coverage? Yes. Individual policies with different benefit amounts, waiting periods, and benefit periods may help address coverage gaps during the initial disability period and after employer benefits decrease.
- Why should physicians review their employer’s complete LTD contract? A benefits summary may not disclose important limitations, including benefit reductions, changes in disability definitions, offsets, and other provisions that affect what the policy actually pays.
Does Employer Long-Term Disability Insurance Really Cover 60% of Your Income?
I reviewed an employer disability policy recently that was one of the more interesting contracts I’ve seen in a while. On the surface, it looked pretty good: 60% of income, up to $15,000 per month. Most people stop reading right there. Then I read the actual contract.
Can Employer LTD Benefits Drop From 60% to 20% After Two Years?
The policy had a 90-day waiting period and initially calculated the benefit at 60% of income. But after 24 months, that dropped to 20%. Take someone earning $240,000 a year. That’s $20,000 a month. At 60%, we’re starting with a $12,000 monthly benefit before offsets and taxes. At 20%, we’re starting with $4,000 a month. That’s a huge difference.
Can Employer Disability Insurance Change From Own Occupation to Any Occupation?
It wasn’t just the benefit that changed. The definition of disability eventually changed from Own Occupation to Any Occupation as well.
Does a $15,000 Monthly LTD Maximum Mean You Will Receive $15,000?
The $15,000 isn’t necessarily your benefit.
I see this all the time. Someone tells me, “I have $15,000 a month through work.” Usually, what they actually have is a policy that pays a percentage of income up to a $15,000 monthly maximum. That’s not the same thing.
What Determines How Much Employer Disability Insurance Actually Pays?
What the policy actually pays depends on how income is defined, offsets, taxes, other benefits and the language in the actual contract. That’s why I want to see the contract, not just the one-page benefit summary.
Do Individual Disability Insurance Companies Consider the Quality of Employer LTD Coverage?
Here’s where this case got interesting.
I’ve said this to clients for years: Insurance companies care about the quantity of your employer coverage, not necessarily the quality of the contract.
That’s exactly what happened here. The individual disability carriers saw an employer plan paying 60% of income up to $15,000 per month and gave it credit accordingly. But it was only 60% for the first two years. Then it dropped to 20%.
How Can Individual Disability Insurance Supplement Employer LTD Coverage?
So we ended up using two policies to fill two different holes. The first supplemented the employer benefit during those initial two years. We were able to purchase about $5,500 per month with a 24-month benefit period.
The second policy had a two-year waiting period and was designed to kick in when the employer benefit dropped to 20%. There, we were able to purchase approximately $11,000 per month.
Why Is Reviewing the Full Employer LTD Contract Important?
That’s a very different solution than simply saying, “You already have 60% through work.” If we had relied on the benefits summary and moved on, this client could have been significantly underinsured exactly when a long-term disability became the bigger financial problem.
That’s really the point. I’m not saying employer disability insurance is bad. I’m saying know what you actually have and how it is going to behave at claim time.
If your benefits sheet says “60% of income up to $15,000 per month,” don’t stop reading there.
Sometimes 60% isn’t 60% forever.
From Scott & Amber’s Desk
One of the most common assumptions I hear from physicians is, “My employer already provides 60% disability coverage, so I should be fine.”
As this example demonstrates, that 60% may not last for the entire claim. Your benefit could decrease significantly after two years, and the definition of disability may change as well.
My advice is simple: Don’t rely solely on your employer’s benefits summary. Ask for the actual group disability specimen contract.
Understand how much you would receive, how long that benefit would last, and whether the definition of disability changes over time.
Sometimes employer coverage is a valuable benefit, but knowing where the gaps exist gives you the opportunity to address them before you ever need to file a claim.
— Scott Nelson-Archer
About MD Disability Quotes
MD Disability Quotes is a nationwide disability insurance advisory firm specializing in income protection for physicians, dentists, business owners, and other high-income professionals.
Founded by Scott Nelson-Archer and Amber Stitt, the firm brings more than 45 years of combined experience helping clients evaluate disability insurance contracts, navigate underwriting, and design income protection strategies tailored to specialized careers.
Scott and Amber are the longest-tenured disability insurance experts featured by White Coat Investor. Their education-first approach has helped thousands of physicians better understand disability insurance throughout medical school, residency, fellowship, and practice.
Whether you’re reviewing an existing policy or exploring coverage for the first time, MD Disability Quotes is committed to helping you make informed decisions that protect your ability to earn an income.
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