Deciding on Employer Sponsored LTD (Long Term Disability) Insurance...

[OneTampa]

First, please forgive the lengthy scenario that follows, but I am curious if others have experience with a similar situation.

We recently received notice at work about long term disability with a request to select one of the following options:

Option 1- Pay only the tax on the disability insurance premium (the premium itself will be paid by the employer) with disbursement of the benefit (67% of annual salary) as tax-free.

Option 2 - Employee pays the premium with no taxes assessed (have premium deducted via pre-tax arrangement) but then employee pays taxes on disbursement of benefit (67% of salary).

Also, the premium amounts do not appear outlandish.

I am certainly grateful to have a decent job with such benefits. And, it seems that Option 1 may be the better deal.

I am curious how this will tie in with Social Security Disability benefits (I have been paying into SS since I was a teenager--over 40 years--and will again get my yearly calculation booklet this month listing more than enough quarters.).

We have until the end of the month to respond to the employer with the option we selected.

In the meantime, I am scheduled to meet with HR later this week and ask questions.

Thanks in advance for your feedback.

[seriously]

The fact that the premium isn't outlandish should tell you that the insurer doesn't expect to payout much on average... 

Most LTDI policies require you to also apply for SSDI when making a claim, and the payout from LTDI will be reduced by whatever SSDI pays, but you really need to review the individual LTDI policy details to determine how the policy was structured deal with the "offset" that results from receiving any additional disability income. Nearly all employee sponsored plans have an offset.

SSDI does not deduct outside LTD coverage benefits. 

You really do want to try to qualify for SSDI if you go on disability because it freezes your SSA earnings record, so you wouldn't be penalized by having years of no income averaged into the payout formula for your future retirement benefit.

I agree with your assessment that option 1 is the better choice for someone with a chronic illness, who is more likely than the average person to need to take advantage of the coverage... Note that SSDI payments are taxable over a certain level, given that the LTDI insurance payout is a fraction of what your current income, every dollar counts.

Group LTDI policies aren't usually portable, so you should consider if you're planning on staying in your position, and if you'll be able to continue to keep your job in your current capacity right up until you need to go on disability. Also, check out how long the coverage is for-- some of the basic plans cover a fixed number of years, 5 typically, or cut off when you turn 65... It is very rare for a LTDI to provide benefit after age 65. Since you've been paying into SS for 40 years, I assume that means you're nearing 60-- so that should be something you find out.

Get a copy of the actual policy, or atleast a policy pamphlet. The answers can vary based on how good of a policy your company has signed up for.

[OneTampa]

Seriously,

I met with HR today. Your post gave me an additional source to come to the meeting prepared with questions. And, HR responded to every one of them in a thoughtful, friendly and professional manner. The result is that the LTD insurance is a desirable benefit with Option 1 the better deal.

Thanks again.