Your Employer’s Disability Coverage Is Nice, but Probably Not All You Need
Q I am a 29-year-old single female making $50,000 a year, and I have recently enlisted the services of a financial planner. My job provides long-term disability insurance (67% of my salary) as a benefit, but the planner thinks I need more. Is it really necessary?
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A It’s always good to be a little suspicious when someone is trying to sell you more insurance. But disability insurance is one product that typically is undersold, if anything; far fewer of us have it than need it.
At first glance, that 67% benefit seems pretty generous; disability insurance usually covers only 50% to 60% of your salary. Insurers generally don’t want to write coverage for more than that because they’re worried you’ll prefer the daytime soaps to working for a living.
But if your employer is paying the full premium (in other words, if you don’t contribute through payroll deductions), then any disability payments you get would be taxable--which could reduce the benefit considerably. Depending on your tax bracket, you could wind up trying to live on as little as half of what you’re making now. If your employer’s current policy doesn’t have an inflation rider, you might have to subsist on that amount for the rest of your life--probably not a pleasant thought. Or your policy may end when you’re 65; if the benefits don’t leave you much room to save for retirement, you’d be in even worse shape then.
A separate policy, paid for by you, could give you tax-free income that would supplement your existing coverage. If properly designed, the policy could also become your main disability insurance policy if you decide to change jobs. That’s another disadvantage of employer-paid disability insurance--it’s generally not portable.
If your planner thinks you can qualify--people in certain occupations have a tough time getting coverage--then it’s definitely worth exploring. Disability insurance is a complicated matter, with many variables to consider. It would be smart to get quotes from a few companies and compare their coverage; to help you shop, check out Silver Lake Publishing’s “How to Insure Your Income” ($12.95). Be sure to look for a policy that can be expanded to provide up to 60% of your income should you change jobs.
Our ability to earn money is our most important asset, yet too few of us have long-term disability coverage. Social Security provides benefits only for the most severely disabled, and workers’ compensation programs cover you only if your disability is job-related. A few states, including California and New York, have benefits for non-job-related disabilities, but the help is short-term--typically no more than six months to a year.
Disability insurance is particularly important when you don’t have a spouse or partner whose income can tide you over through unemployment caused by accident or illness. It may be less important to you if you have significant savings, or if you don’t mind risking a significant drop in your standard of living. For the great majority of us who aren’t in either camp, disability insurance is usually a smart buy.
The Credit Card Fee Free-for-All
Q. I think you missed the point when you answered the question from the man whose credit card company approved a charge that was over his credit limit and then slapped him with a $29 fee. Card companies used to decline those charges rather than approve them. Today they charge you for everything they can think of, and you usually don’t know about the charges until you get hit with one. You told the reader to “get even” by paying off his card and not being such a profitable customer. I think the credit card companies should be held criminally liable for what they’re doing to people.
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A. Well, they probably would be, if what they’re doing was illegal. But unless and until laws are passed to rein in some of the worst abuses, card companies are allowed to charge fees for just about anything they want, provided they notify you first. And they do, typically in teeny tiny print mixed in with those ads for address labels and “free” sunglasses.
But keeping up with changes in a credit card account and keeping track of a credit card balance are among our responsibilities as financially mature adults. Yes, it’s a pain to wade through all the fine print, and, yes, companies should do a better job of clearly informing us about changes. But as long as our hard-earned money is at stake, it’s up to us to keep ourselves informed.
It’s never been easier to keep track of your credit card balance, by the way. Most credit card companies offer automated toll-free phone lines that are updated daily, and many are starting to offer access to your account via the World Wide Web. Also, if you’re a good customer, you may be able to persuade the company to remove a charge the first time it appears--just ask nicely, and if that doesn’t work, politely threaten to close your account.
My advice remains the same. Staying well below your limit, paying your bill as soon as it arrives and paying off your balance are the best ways to avoid those punitive fees.
Liz Pulliam is a personal finance writer for The Times and a graduate of the certified financial planner training program at UC Irvine. She will answer questions submitted--or inspired--by readers on a variety of financial issues in this column. She regrets that she cannot respond personally to queries. Questions can be sent to her at liz.pulliam@latimes.com or mailed to her in care of Money Talk, Business Section, Los Angeles Times, Times Mirror Square, Los Angeles, CA 90053. For past Money Talk questions and answers, visit The Times’ Web site at https://www.latimes.com/moneytalk.
