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Go beyond employer's life and disability policies

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Joseph Ortiz

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Posted: Saturday, January 28, 2012 8:00 am

If you work for an employer who offers a benefits package that includes life insurance and disability income insurance, consider yourself fortunate. But you can't necessarily consider yourself fully protected. And if you don't have appropriate life and disability insurance, your long-term financial goals could be at risk.

Life Insurance: How much is enough?

The amount of life insurance you'll require will change throughout your life. When you're starting out in your career, and you're single and living in an apartment, you probably need a lot less insurance than you might a few years later, when you have a spouse, children and a mortgage.

Because your life insurance needs will evolve over time, you can't really use a "formula" to determine how much insurance you should own. The only way to determine your true needs is to take stock of your individual situation.

How big is your mortgage? How much will it cost to send your kids to college? How much income is your spouse likely to bring in over time?

By answering these and other key questions, you should be able to get a good sense of how much life insurance you'd need at any point in time. From there, it's just a matter of seeing how much insurance your employer is offering and then purchasing enough coverage on your own to make up the shortfall, if one exists. And you'll find other benefits to owning your own policy: It may be more cost effective, and you'll keep the coverage even if you change jobs.

If you purchase a term life policy, you'll find it quite affordable to receive a substantial amount of coverage. Eventually, to help yourself meet goals beyond just protection, you might want to consider some type of permanent insurance, such as whole life or universal life, which contains an investment component in addition to the death benefit.

Disability Insurance: Go long

An illness or accident will keep one in five workers out of work for at least a year during their working careers, according to the U.S. Census Bureau.

And Social Security Disability Insurance (SSDI) might not help, because, in any given year, most claims are denied. In fact, in 2007 only about 38 percent of the 2.2 million people who applied for SSDI benefits actually received them, according to the Social Security Administration.

So, while you are healthy and working, ask some questions about your employer's disability insurance plan. What does it cover and for how long? Many employers provide short-term disability plans because they are relatively inexpensive, but as we've seen, many disabilities last a year or longer.

Find out if your employer offers any long-term disability coverage, which can provide benefits until you reach age 65. If so, think about purchasing as much as you can.

If you can't get enough coverage at work, consider a policy from an outside provider. Basically, you need enough of a monthly disability insurance benefit to replace your net take-home pay, so that your current lifestyle does not change. Disability insurance policies vary widely in coverage and premium, so shop around before purchasing one.

Take full advantage of your employer's life and disability insurance plans. But if this coverage isn't enough, get what you need on your own. You'll be making a smart investment.

• This article was written by Edward Jones for use by Ahwatukee Foothills Edward Jones Financial Advisor Joseph B. Ortiz, CRPS. Reach Ortiz at (480) 753-7664 or joseph.ortiz@edwardjones.com. Chartered Retirement Plans Specialist and CRPS are registered service marks of the College for Financial Planning.

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