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At my work I am offered two plans. 1st one is for $55.08 per year pre taxed 60 percent and the 2nd $480.68 per year post tax 65 percent. I am 52. What's the best option?

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    Please provide more detail. Tax questions require you mention your country, for instance. Are there any other differences in the coverage? – Chris W. Rea Oct 13 '15 at 22:57
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In the United States, it is common for employers to offer five options. Typically the coverage options have the same requirements to be eligible for collecting benefits, and the benefits last for the same amount of time. These percentages are typical values:

  • No coverage. (Zero cost).
  • Benefits of 50% of the employee's base pay. The benefits are pre-tax dollars. The premiums are also pre-tax dollars. This plan might cost (for example) 1 percent of the employee's base pay.
  • Benefits of 50% of the employee's base pay. The benefits are after-tax dollars. The premiums are also after-tax dollars. This plan costs the same as the previous plan in dollars, but is more expensive because the premiums are after-tax.
  • Benefits of 65% of the employee's base pay. The benefits are pre-tax dollars. The premiums are also pre-tax dollars. This plan might cost (for example) twice as much as the other pre-tax plan.
  • Benefits of 65% of the employee's base pay. The benefits are after-tax dollars. The premiums are also after-tax dollars. This plan costs the same as the previous plan in dollars, but is more expensive because the premiums are after-tax.

Three of these choices can make sense, depending on the employee's situation:

  • If the employee is well-off enough that they could afford to retire, they might not need disability insurance at all.
  • If the employee wants as much coverage as they can get at the lowest cost per dollar of coverage, and the employee does not have a particular reason to expect to become pregnant or disabled, they should choose the 50% after-tax plan. If (for example) the employee is in a 25% marginal income tax rate, this effectively provides 33% more coverage in exchange for 33% more premiums than the 50% pre-tax plan. In other words, it provides similar coverage to the 65% pre-tax plan for about one-third less cost, or 77% of the coverage of the 65% after-tax plan for about half the cost.
  • If the employee is a woman who might get pregnant in the next few years, or if the employee has another reason to think that disability is especially likely, the employee should choose the 65% after-tax plan. This plan offers the most coverage. The reason it costs more than the 50% plans is that the other high-risk employees are also likely to sign up for this plan.
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    On your last point, a woman should check carefully what length of time is required for the LTD coverage to kick-in (it's often at least 30 days, and sometimes much longer). I assume it could not be taken if on short-term disability. – mkennedy Oct 14 '15 at 18:29

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