Risk Management: Disability

1. Action item: Short Term Disability coverage, like some group term life insurance for some employed Americans, can be offered through employer benefits and the employer often pays 100% of the pre-tax premium costs. Along with CA state disability insurance, your short term disability claims, if any, will be judged for benefit combined between this policy and the state benefit while you are still employed. Your employer STD benefit will be taxable, your state STD is not taxable. The benefit usually provides for 40%-60% of weekly salary and often requires using all sick days before the benefit begins.

2. Action item: Long Term Disability coverage, like some group term life insurance for some employed Americans, can be offered through employer benefits and the employer often pays 100% of the pre-tax premium costs, however some employers can allow the employee to pay with certain tax implications. The benefit usually provides for up to 60% of weekly salary and often requires using all sick days and short term disability benefits before the long term benefit begins. There may be an additional monthly maximum benefit amount per month set as well.

3. Action item: If the employer pays the long term disability premiums, then the benefit received from a long term disability claim is taxable. If the employee pays the long term disability, it is treated as a post-tax withholding to pay the long term disability premium, and therefore, the benefit received from a long term disability claim is received tax-free in this case. It is recommended to choose the employee-pay/after-tax option to pay LTD premiums because the cost is usually quite reasonable for a larger impactful increase on the benefit if a claim were to be filed.