A Discussion on Disability Insurance

Disability insurance can be of help if a policy holder cannot work to earn an income. How can someone get this insurance? Are there different types and how long do these benefits last? IBKR Human Resources Director, Michael Kerrigan joins Cassidy Clement, Senior Manager of SEO and Content to discuss disability insurance.

Summary – Cents of Security Podcasts Ep. 28

The following is a summary of a live audio recording and may contain errors in spelling or grammar. Although IBKR has edited for clarity no material changes have been made.

Cassidy Clement

Welcome back to the Cents of Security podcast. I’m Cassidy Clement, Senior Manager of SEO and Content at Interactive Brokers. Today, I’m your host for the podcast and our guest is IBKR’s Human Resources Director, Michael Kerrigan. We’re going to discuss disability insurance. This type of insurance can be of help to the policyholder who cannot work to earn an income. But how can somebody get that insurance? And are there different types and how long do these benefits last? We’re going to discuss all of that today. So welcome to the program, Mike.

Michael Kerrigan

Thank you, Cassidy.

Cassidy Clement

So based on what we’re going to talk about today, do you want to give the listeners a little bit of background and some context with some of the points that you’re going to bring up?

Michael Kerrigan

Sure. My name is Michael Kerrigan as you said Cassidy. And I’m the Head of HR for Interactive Brokers here based in the US. I’ve been in HR roughly over twenty years. I’ve been with Interactive Brokers for about seven years. The subject matter is definitely very important and it’s very important for most people to know. Basically my responses are going to be based on high level, just in general what those plans are and then most of it is based on what Interactive Brokers offers for those plans.

Cassidy Clement

So on the main topic here, what is disability insurance? How does that work? How would you explain that to somebody looking at it, just entering the space?

Michael Kerrigan

Sure. So you know, disability insurance is a type of insurance that basically protects against loss of income due to a disability. It provides income replacement benefits for people who have these plans and coverage either through work or through their personal needs and that’s it. It’s a simple response.

Cassidy Clement

So how would somebody go about getting this type of insurance? Is this something that you would look for from an employer or could you get it without your employer offering it?

Michael Kerrigan

Yes, so there’s a few ways to get coverage. So disability insurance in general, most employers offer disability insurance as a basic coverage. There is supplement insurance that obviously you know increases the value of your income replacement and then individuals can go out to the market and purchase their own disability type insurance. And you are able to use more than one type of disability insurance to cover. But the intent through all disability plans is especially if it’s work related, our work program is to get you back to work as quickly as possible.

Cassidy Clement

As far as I know, there are different types of disability insurance short term versus long term. So would those policies vary in different ways if you were to give a bullet list? And then maybe define those for our listeners.

Michael Kerrigan

Yeah. So the different types of insurance that you have short term disability, you have long term disability, you have individual or individual disability insurance and then you have group disability insurance. So most companies offer a group disability insurance that’s essentially, you know, it gets the same coverage for everybody. The same payout for everybody. And some of that. Then you have short term disability, which is basically you have to be qualified to in order to earn short term disability.

This allows you to have income protection and allows you to be off for a period anywhere between one all the way up to twenty six weeks. And then long term disability is essentially something that takes over after that. So that could be after the 26 weeks are covered, long term disability could kick in at that period and that could basically allow you to be covered and under insurance for forever long. It takes to it could and it could be forever, right? Up until a certain age.

Cassidy Clement

So some policies from my research that I’ve done, some policies show that they may cover a partial disability. What exactly does that mean?

Michael Kerrigan

So a partial disability is essentially if the disability…so hypothetically if you were, let’s go to sports. If you were a soccer player and you injured your leg and you no longer could do the profession that you did and you were paid for and you had to go do something else. So a partial disability would be coverage to cover your income that you lost from doing that job. Doesn’t mean that you can’t go do another job, but you’re now prevented from doing your employment that you got a career in, that you were paid for nicely or handsomely. And now you have partial disability that you can get covered for to continue on to doing your other job and bringing in income. And it would bridge the gap for that income.

Cassidy Clement

So I think that kind of leads me to another question. I think we kind of touched on this earlier, but for some people, maybe if they would like more coverage than what the employee option offers, they can go out and find a policy on their own, correct? If they have like higher income that they’d like to insure?

Michael Kerrigan

Correct. So most companies have moderate caps where basically it would only cover you up to, let’s say, $1500 a week or cover up to $2000 a week. You know, there’s a lot of factors that go into how much you’re going to be paid, but individuals could go out based on paying a premium and go out and purchase their own coverage that will allow them to get more income for the disability.

Cassidy Clement

So while some policies will obviously have tons of details and exclusions or what common things they cover, what typically would disability insurance cover? What are the normal things that people would hear and go “ oh, right, that’d be covered” when they’re reviewing these policies?

Michael Kerrigan

In the sense of it being covered, it covers the fact that if you’re not able to work due to an injury or medical injury, it covers and supplements some of your income. It depends on if you’re looking to actually purchase plans. There’s a lot of factors that you probably have out of your control that protect. Because essentially it’s income replacement. You cannot go out and purchase a plan and say, hey, I want $1,000,000 a week, I’m gonna pay for it. You can’t get a plan. Essentially it’s like if I make $1000 a week, you know, that’s your cap. That’s what you’re going to go out and get insurance for.

And that’s where you’re going to go get your supplemental insurance for. So there’s factors that go into when looking for plans, it’s the type of coverage you have and what you’re looking for. Maybe you’re a race car driver and you want some additional insurance and stuff like that that covers that. Those plans may exclude certain types of those activities, but look to see what the inclusions are in those policies, especially self-policies, not company policies. Who the provider and the insurance provider is? The larger companies like Hartford or you know, I’m sure there’s many prudential things like that that actually cover disability insurance.

That factors into it because every company is offering different plants because it’s a competitive market. How much you earned, what your occupation is comes into factor here and then the potential extent of your disability. So if you broke your leg, that’s being disabled, that is not able to work. If you were a taxi cab driver or something like that. So you would basically get coverage that will allow you to recoup from that injury and hopefully get it back and be able to come back to work. And obviously we’re referring to our plan. Our plan itself is we have six weeks of 100% salary continuance. So basically if you’re injured and it was going to take you 9 weeks to recover from that injury, the first six weeks would be 100% paid what your salary was and then the next weeks are based on 60% of your income with the cap of $1500 a week.

Cassidy Clement

OK, so I have in front of me a list of some of the common examples of using disability insurance. So for short term disability, I have injury from a major accident, upcoming surgery and then the recovery time, side effects from a medical procedure and then disability associated with the delivery of a child. So are any of those.. maybe you want to add some caveats or any additions to some of these commonly referenced ones with short term?

Michael Kerrigan

So those are definitely common ones, right? Those are ones that you know, we typically have where people are getting surgery. It’s going to take them a few weeks to recoup and they’re not going to be able to work. The hybrid world kind of has changed a lot of that where people are continuing to work after the fact. But you know, there’s still a lot of jobs that don’t have a remote capabilities where you do have to take some time off to do that. And short-term disability is properly used.

Now the caveat to short-term disability is essentially it’s your doctor that basically has to prove that you qualify and usually most companies, whether it’s an individual plan or whether it’s an employment plan, will work with the provider and they will have a conversation about what it is, they’ll submit doctor records that there is a doctor on those companies that actually review the case, and they essentially would say, hey, this person tore their Achilles heel. It takes about six weeks to recoup. This person doesn’t have remote capabilities or they’re not physically able to work. And they’ll say, you know, the typical recovery time is 10 weeks, right? So they’ll come up with that 10 weeks short-term disability and they’ll predetermine that. Now the interesting thing about maternity leave, for women who have babies and things like that, is it’s short-term disability and it’s common that short-term disability and parental leave coincide, right?

You couldn’t just get one without the other. Some companies have very good maternity leave plans that they utilize that as the short-term disability plans or vice versa. They have very rich short-term disability plan coverage that supplements their parental leave. But you know, I can make positives and negatives about why they’re conjunction and it’s definitely, you know, in this day and age, the progress is to remove the separation because while yes, it is a qualified disability, it shouldn’t be treated as the same. And you should basically design a plan based on the needs of your diversity goals and things like that. And it’s a common usage for companies to combine those, but it’s a good practice to try to separate those pieces out.

Cassidy Clement

So some of the common long-term disability items I have here are heart disease, cancer, stroke, mental illness, arthritis, diabetes. Are there any other ones that are really common for long-term disability usage?

Michael Kerrigan

A very low percentage of people move to long-term disability, so I wouldn’t say there is an active list of common. I think in some most cases and one that I typically forget and one that’s taking an increased one is mental health awareness. You know, both short-term disability and long-term disability are inclusive of mental health. And typically when people go into, specifically long-term, a lot of it is mental health awareness.

And also probably loss of limb or arthritis is a big one. Those are probably one of the typical ones, but it’s when individuals aren’t able to work for a long period of time or stand up for a long period of time or it’s exhausting to get through an effort and then they have to take a couple of days off. Like those are the ones that kind of lead people to go to long-term. But you can’t jump into long-term. The only time you can get into the long-term, you know there are caveats and exceptions that you could start long-term before the twenty-six-week mark, but long term typically is an extension of short-term disability.

Cassidy Clement

So when people are looking at plans and comparing them, what are some of the items that you would say are the main bullets that they should be looking at? I mean usually cost is one of the coverage. Any additional caveats, premiums, benefits. But what are some other things? I know you and I have spoken outside of this about some cost of living and flexibility. Are there any other pieces that people should look at first?

Michael Kerrigan

So obviously with a company plan, you can’t change it. They may offer levels depending on how much you’re willing to pay or what the caps are. But the main important thing is if you look at your income and what’s your supplemental range, right? So you want to look for a plan that you can afford that’s going to offer a higher cap. So like I said, our basic plan is $1500 a week is the max up to six weeks for short term disability. So if you go out to a private plan or go off for a supplemental plan, some of those maximums can be up to $10,000. So you know a lot of factors. How much money you make and basically how much money you’re looking to supplement to ensure that you maintain your lifestyle or at least with reasonableness after the fact.

So I would look for what the caps are for those plans. I’d look for plans that offer cost of living adjustments, you know, especially in this day and age, you have a significant amount of inflation. So if they’re not offering any type of change in those caps, I’d look for those plans. You know, some plans offer return to work lump sum, right? So you know you’ll be off and rather getting paid every week, they’ll basically say, okay, if you come back sooner, we’ll give you a lump sum extra of coming back to work sooner.

The goal for most insurance companies is to get you back to work, right? So if you had someone who earned 100% of their salary continuance for the whole time they’re out short disability, there’s no incentive for them to come back. They want to maintain. And why would you want to? You know, obviously I’m just saying this in general, but you know, if you are physically able to come back or mentally able to come back, why not incentivize them to come back? And, you know, obviously compensation is an important piece. And then there is the one piece to look for in other plans, which is how does it protect your family, right? So if you’re part of that family and something does happen to you, are there provisions that can transfer over to your family members?

Cassidy Clement

So all of those are really great items to keep in mind when listeners or whomever are looking at plans or trying to review. Because you brought up a really good point. You want to make sure that you and if you have a family that you support are somehow covered.

So thank you for joining us, Mike. As always, listeners can learn more about an array of financial topics for free at ibkrcampus.com. Follow us on your favorite podcast network and feel free to leave us a rating or review. Thanks for listening!