Thursday, May 30, 2019
Find out what is covered and whether you may need an individual DI policy
As part of Amazon’s corporate benefits, employees working more than 30 hours per week are eligible for both short-term and long-term disability coverage at no additional cost. Under both plans, employees that become medically disabled can receive 60 percent of eligible salary up to a certain limit.
What do you need to know about these Amazon employee benefits? What does Amazon disability insurance (DI) cover, and is it sufficient? Should you have an individual policy to supplement the group plan? Let’s explore each of these questions.
Do You Need Disability Insurance?
Did you know that one in four people 20 years or older will become unable to work due to medical conditions at some point in their lives?
If this happens to you, a disability insurance policy will provide you with the necessary income to cover expenses such as your mortgage, car payments, and living expenses so you can avoid experiencing severe financial distress.
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Such coverage is particularly relevant for workers living in areas with a high cost of living, such as Seattle, where a loss of income for just a few months could create a substantial financial burden, especially if you’re the primary breadwinner in the family.
Disability insurance is also more important for younger employees who haven’t had the chance to build a nest egg and may have student loans or other debts that are on a payment schedule.
Does Amazon Disability Insurance Offer Enough Coverage?
Here are the pros and cons of Amazon’s group policy and what you need to know to decide if it offers sufficient coverage for you:
The group plan offers easy enrollment and doesn’t require underwriting. However, there are some restrictions you should be aware of:
- The policy is not portable and can be canceled
- It has a maximum cap of $300,000
- Group DI benefits are taxable, as the employer is paying the premium
Amazon Short-Term Disability Insurance
According to the Amazon Employee Benefits Overview, the short-term DI covers only 60 percent of the pre-tax weekly rate, which is defined as the salary or the hourly wage multiplied by 2,080 for full-time hourly employees.
The weekly rate does not include restricted stock units (RSUs), bonuses, commissions, overtime pay, shift differential pay, or extra compensation. The plan also comes with a seven-day waiting period (“Elimination Period”) before benefits begin, although the pay is retroactive to the first day of disability.
Short-term maternity disability coverage is available for birth mothers and is equal to 100 percent of basic earnings for up to four weeks prepartum and ten weeks postpartum.
Disability insurance can be important for younger employees who have not yet had the chance to build a nest egg.
Even though the stated maximum pay is set at $2,300 per week for 26 weeks, most won’t be getting that amount as Amazon employees’ salaries are capped at $160,000. That means most employees can get maximum annual coverage of $90,000, which is taxable.
Amazon’s DI policy also offers a partial disability benefit if a medical condition prevents an employee from performing their duties and causes them to lose at least 20 percent of the monthly income as a result.
Amazon Long-Term Disability Insurance
If you continue to be disabled after 180 days on short-term disability, the long-term disability plan will kick in and begin paying benefits.
Amazon’s long-term DI pays up to covered eligible monthly pay, capping at $25,000 a month or $300,000 per year (including salary + RSUs) for up to 24 months. The plan has a pre-existing condition exclusion provision, so you may not get coverage if you’re unable to work due to a pre-existing health issue.
If you’re unable to perform your job duty or any job for which you were trained after 24 months of continuous disability, then you could risk losing the Amazon employee DI coverage.
Should I Also Have an Individual Disability Insurance Policy?
In today’s economy, your most valuable asset is the “human capital,” which is often overlooked when discussing job opportunities and benefits.
Accounting for the fact that one in four people will become unable to work for any length of time over the course of their careers, individual DI is a cost-effective way to ensure the continuity of income.
While it’s possible to obtain benefits from Social Security Disability Insurance, it’s often not a dependable option as initial claims are frequently denied, and there’s an elimination period of five months.
Given the limitations of Amazon’s disability insurance policies, you should consider adding an extra layer of protection by having an individual disability insurance policy as part of a comprehensive financial plan.
Many individual disability insurance policies require medical underwriting, so consider purchasing yours while you’re healthy.
Here’s what you should know about individual DI:
- It’s portable, so you can take it with you if you change jobs.
- You can customize the policy with either “own occupation” or “any occupation.”
- It’s non-cancelable and guaranteed renewable, as long as you pay the premium/
- The benefits are tax-free as you’re paying the premium; not the employer. th can make a big difference to the net pay, especially when you’re only covered for 60 percent of your income.
- The elimination and benefit periods can be customized by adjusting the premium (i.e., you can pay more if you want a shorter elimination period or longer benefit period).
- It can be customized to offer inflation protection, which is important for younger employees who are likely to be on the policy for a long time.
- It’s often more expensive and subject to underwriting, which means you’ll likely need to go through an application and approval process.
Factors to Consider When Evaluating an Individual Disability Insurance Policy
There are many insurers on the market offering a variety of policies. As an individual consumer and Amazon employee, here’s what you should consider when looking for an individual DI policy that’s right for you:
- Many individual DI policies require medical underwriting, so you should purchase yours while you’re healthy. Employees with pre-existing conditions often experience more scrutiny during the underwriting process.
- Most insurance companies consider individuals over 65 as retired, so don’t purchase a plan if you’re close to or over 65. Instead, find out if you’re permitted to withdraw funds from your tax-advantaged retirement accounts without incurring a tax penalty.
- The underwriting process required for individual DI takes a variety of factors into account to determine your premium and eligibility. These factors include health conditions (e.g., health survey, medical exam, medical records), income and financials (e.g., W-2 or 1099, tax returns, bank statements), and occupation (e.g., employees working in more hazardous conditions, such as certain manufacturing or outdoor occupations, could receive lower monthly indemnities).
- Consider the big picture and how your DI fits into your overall financial plan. Your DI should be stacked on top of the Amazon corporate benefits plan and offer more specific definitions of “occupation” and “disability” than the generic definitions in the group plan.
- Calculate the emergency fund amount you should have at your disposal, which can be used to supplement the income from your DI plan. As a rule of thumb, aim to have one year’s worth of annual spend in cash and liquid investments, such as bonds, stock, and mutual funds. Younger employees can aim to set aside three months’ worth of emergency funds, which is the average amount of time most would need to find a new job.
- Account for all of your recurring and major expenses—such as rent or mortgage payment, student loan debt, credit card debt, automobile financing, and child support or alimony—to get a realistic estimate of the coverage you need.
- Consider the premium and customize the policy to fit your budget. You can do so by adjusting the benefit amount, terms, and key features, such as the elimination period and whether you choose “any” or “own” occupation coverage. For most employees, it’s recommended that you keep the total premium under 2 percent of the gross (pre-tax) income from your job.
- Find out whether the policy covers income loss related to on-the-job injuries, which are often the province of workers’ compensation insurance.
- For long-term DI policies, consider whether there’s a set term (which could range from two to 10 years) or if the plan will remain in force until you reach retirement age, which is typically set at 65. Some plans continue coverage after age 65 if you continue to work, so this could be a key consideration if you’re older.
Navigating the world of Amazon corporate benefits and disability insurance policies can be complex. You need to take many factors into account to optimize your coverage and ensure that you and your family will be taken care of when the unforeseeable happens.
Do you have questions specific to your situation or want to learn more about corporate benefit plans? Get in touch today, and a member of our team can help you explore your options.
Brent Ericksen, CFP® serves as an advisor at Brighton Jones.
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