Employer provided coverage is often inadequate
If you are an employee of a large company, your employer may provide group long-term disability coverage. The premiums are discounted from what you would pay for an individual policy. However, these policies are often incomplete or inadequate for the financial needs of well-compensated individuals and their families, so it is wise to consider purchasing a private, supplemental policy.
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Also, because the benefit is paid by your employer during your disability, it will be taxable income. For most, this arrangement would result in the insured earning less than half of what he or she took home before the disability after taxes are paid. We advise that clients purchase a personally owned policy, paid for with after-tax dollars. By purchasing personally and after-tax, clients gain two things, portability and a tax-free benefit should a disability occur. Portability refers to the policy being able to be maintained when someone changes jobs, something that employer provided coverage typically fails to do. Also, when policies are paid for with after-tax dollars, the IRS allows benefits to be received tax free. A supplemental policy is an essential step in appropriate and strategic disability insurance planning.