Supplemental disability insurance: What it is and when you need it

No one plans to get sick or injured to the point where they cannot work—but it happens. And while many employers offer short- and long-term disability coverage to provide financial assistance during a period of disability, these benefits typically only cover a percentage of your income, not the whole amount.

This is where supplemental disability insurance coverage can step in, providing additional income beyond what your employer offers.

Supplemental disability insurance can bolster the disability insurance coverage offered by your employer. Any disability insurance that might be included in your benefits package covers a portion of your salary if you become sick or disabled with a qualifying illness or injury and you cannot work for an extended period. This type of policy is typically reserved for serious illness or injury, such as a back injury from a car accident, a heart attack or a severe mental health crisis.

However, this coverage has limitations. Most employer-sponsored disability insurance plans cover between 40% to 60% of your salary. That leaves a significant gap if it turns out you can't work for some time; you may not be able to cover all of your monthly expenses with roughly half your current salary. Applying for Social Security disability may be an option, but only if you qualify for benefits. This process also could take a long time, leaving you without sufficient income during that period.

Supplemental disability coverage helps close this gap by offering another layer of financial support if you're unable to work. Supplemental coverage is also a personal plan, meaning it's not tied to your employer, so you can take it with you from job to job.

There are two primary types of supplemental disability insurance: short-term and long-term. Here's what you need to know about each.

With short-term disability insurance, you'll pay a monthly premium and then submit a claim to your insurer when you need coverage. You'll need to show your insurer proof of your illness or injury and that you can't work.

As you go through this process, remember that:

• Short-term disability insurance has a waiting period, often ranging from 7 to 30 days. However, it will typically take 14 days before your coverage kicks in.
• Benefits typically range from three, six or 12 months depending on your plan.
• Most plans cover between 40% and 60% of your lost wages.

Much like short-term disability insurance, you pay a monthly premium for coverage, and if you face an illness or injury and can't work, you'll submit a claim to your insurer. You'll likewise need to prove your illness or injury in your claim and explain why you can't work.

However, the figures here are a little different:

• Disability insurance has a waiting period—called an elimination period—before coverage kicks in. It's typically 90 days, though it can be shorter or longer depending on your coverage.
• Depending on your plan, your coverage can last as little as two years or until retirement.
• Most plans will cover between 60% and 80% of your lost wages.

Injuries and illnesses don't care how old you are. Coverage isn't just for older people—anyone can be struck with an illness or injury that takes them out of work. In fact, according to the Social Security Administration, 25% of today's 20-year-olds will become disabled before reaching retirement.

Your age also may help you decide whether you should opt for long- or short-term disability insurance. If you're close to retirement, for example, a short-term policy may serve you better than one that lasts five or more years.

Employer-provided disability is often tied to your job. However, it is not a required benefit, and you may run into employers who don't offer disability insurance at all. Alternatively, some employer-sponsored plans only feature short-term coverage—if you feel like you might need long-term coverage, you may not be able to get it through work.

Holding your own personal disability insurance ensures you'll have coverage throughout your career.

If only 60% of your income is covered through your employer-provided plan, you risk running into financial shortfalls while you're away from work. It is important to note that group disability through an employer may be taxable if the company pays for the coverage, further reducing your % of income covered.

Additionally, if your employer only offers short-term coverage and you exceed the allotted time permitted with a short-term plan, you may not have any income at all. Securing that additional income benefit through supplemental insurance can help bridge the gap.

The monthly premium for both short- and long-term supplemental disability insurance will typically be between 1% to 3% of your salary. While other factors—including your age, health and occupation—may factor into pricing, this coverage is often a cost-effective type of insurance coverage.

Some estimate that a stay-at-home spouse could earn more than $175,000 a year in an equivalent salary. If an at-home spouse is hurt or ill and can't perform their typical household duties for an extended period, you may have to find others to step in and cover those tasks—which can increase costs for the family.

Supplemental insurance can help cover the costs of getting help with child care and other responsibilities a stay-at-home parent can't manage while sick or injured.

Your employer-provided plan may not have a wide enough range of benefits and features, limiting your flexibility. Having your own supplemental insurance allows you to choose the coverage and benefits that work for you.

Keep in mind that if you want a higher coverage amount, longer-term benefits or a shorter elimination period, those features may raise your premium costs.

You can apply for Social Security disability benefits if you cannot work due to disability or injury. However, this coverage is not always easy to qualify for, and the application process could take months. In addition, if you do qualify, you'll have to wait six months before receiving any benefits.

Having supplemental coverage with a shorter elimination period can help you get coverage quicker than you might through Social Security. It also can bridge the gap while you wait for your disability benefits application to process.

If you're young and healthy, you may think about skipping supplemental coverage. However, many situations could warrant supplemental disability coverage. A financial advisor can work with you to go over your options and help you find the best plan to fit your needs.

Connect with a local Thrivent financial advisor to talk about supplemental disability insurance.