Is Your Employer-Provided Disability Insurance Enough?

It's Brian Preston the money guy All right, Brian. Here's the next question. This one is from Jake Jake said do you guys or do the guys? recommend supplemental disability insurance above and beyond employer provided Married 40 year old working in software, so Brian. I think first like what is disability insurance Why do we need it are there different types of it is what my employer gives me good enough? Or should I think about also having some on the outside yeah? I think I think and I'm glad you asked the question we did because I think this is like most things I'm trying to make an analogy when it's not necessary, but it's um Does have any cars no having a background in tax planning everybody thinks tax codes are so complicated And I always just say you have to understand the why if you just go read the instructions to a form before you actually look At a form you'll have a much better understanding of what the intent was for this so when you look at like disability insurance What is the why on this is once again comes back to just like term life insurances in case? You die prematurely What's the things that will replace the income for unfulfilled obligations? You have and that might be debts that might be income for your surviving spouse that might be education goals Well, it just death is not the only thing that triggers that need you know There's actually a lot of research that shows you're much more likely To become disabled than you already even die it might not might not be able to do your job So it's another thing that can be insured and remember we don't sell insurance So this is this is our take on this is that I think you have to first ask yourself How susceptible is my family and my desires and my goals financially if I'm no longer able to work? And for most of us it's going to be highly you're going to be on fragile shaky ground If what if you no longer can work just because you're disabled so once you decide that the need is there you need to figure out How much and that's why now here's a here's a few cool things If and because it's written into the tax policy, so maybe it's okay that did my tax analogy if you pay with after-tax premiums meaning you Pay with your after-tax meaning you didn't get a tax deduction when you funded the premiums The IRS does allow because it was written into legislation that the benefits for disability insurance is paid tax-free Yeah, so is it with that? That's a huge head start because think about how many of us are paying Over 30% of our income goes to pay taxes if that now the net benefit comes to us tax-free Man, we can we can pay for a lot of life with that So that that first gives you a huge head start that you don't have to replace a hundred percent of your income Maybe you only need to replace 60% of your income depends on I really go look at your tax situation look at your living expenses So once we figure out how much you need and if it's 60% is a good rule of thumb We can go compare What is my employer pay for take into account because if it's employer paid remember you're not gonna get the tax benefit Maybe you have to reduce that down for net of taxes But do that comparison so you can figure out what is the need and how much of the premiums? What is the by the way? You also need to make sure you have enough cash reserves to make it through the hold it You know the waiting period that you have to do on different premiums all this stuff comes in play But it's definitely in a very important exercise when you're looking at the the mitigating of risk in your overall financial life Another big benefit to having disability insurance outside of your employers if you do change jobs Perhaps you had disability insurance with one employer, and then you go to a new employer. They may not offer it, right? So one of the good things about having outside policies you do get to take it where you do get to carry with you I don't think you mentioned. This is one of the thing I know I left a little meat on there I know where you go. Okay. You talked about there's two different types, right? Why don't you go and talk about those two different types and why they matter well? You have to pay it pay attention to what you do for a living and how specialized it is because there's oh knock Which means like you know think about surgeons and stuff like that is that if you work with your hands and all of a sudden? You know That part you might find if you have it just a general disability policy and your hands don't work like they should but you could go Work another job. We always use the example be a greeter at Walmart That policy might not pay the full benefit. So you need to pay attention to so that's why there are You know Oh knock is it allows you to specialize me if you can no longer working your your occupation That it will pay at this level and it has different criteria for triggering it a little bit more expensive It's gonna be more expensive. And here's something I have done for my own person because I have disability insurance, too Is it's okay if you have some Oh knock that's more expensive They cover some base level type of expenses so that you're not leaving the family family penniless and then maybe you can have some general Disability insurance too because that way maybe if you can work part-time or go do something because work is good That offs it is supplements with the the Oh knocks policy. It works out It doesn't have to be an either or you can do a balanced approach just like most things in life It's not polar or binary There's usually a lot of gray zone that you need to make sure you do the extra actual exercise Figuring out what the why is what's the need and what you qualify for? And work with all the benefits and kind of put together a plan. I love it