Page 39 - Foreign Service Journal - March 2013

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THE FOREIGN SERVICE JOURNAL
|
MARCH 2013
39
through college, and built up retirement savings may be better
able to self-insure.
Protection from this kind of fnancial risk is best provided
by disability income insurance, also known as income replace-
ment insurance. Te good news is that all Foreign Service
employees automatically have some employer-sponsored DI
coverage in the form of the Foreign Service Disability Retire-
ment Pension. However, this pension replaces only a small
part of an employee’s salary.
After working with a number of Foreign Service clients, I
have come to realize that many of them mistakenly believe
they have more DI coverage than is actually the case. As a
result, they unwittingly carry more fnancial risk than is advis-
able.
While I want to stress the importance of supplemental dis-
ability income insurance for flling the gap between support
from a Foreign Service Disability Retirement Pension and the
individual or family’s living expenses, it should be noted that
there is a notable lack of options available to members of the
Foreign Service, for the very reason that they work overseas.
Insurance: The Right Mix
While gathering data to prepare a fnancial plan for Foreign
Service clients, I routinely review their earnings and leave
statements. In so doing, I’m often struck by the number of
insurance premiums deducted from employees’ salaries. A
typical E&L statement will have deductions for Social Security;
Medicare; basic life insurance; Federal Employees Group Life
Insurance; and a group health plan, dental plan, vision plan,
long-term care insurance and an immediate benefts plan;
among others.
What is not usually on that list of deductions is supple-
mental disability coverage. Yet the permanent disability of a
breadwinner can be more fnancially damaging to the family
than his or her death.
Most U.S.-based employees, whether in the public or pri-
vate sector, have either purchased enough life insurance cov-
erage to ofset the loss of the employee’s income in the event
of premature death, or have access to such coverage. But fewer
than one-third of those employees carry sufcient
long-term
disability insurance.
Tis gap in coverage is due both to a lack of understanding
of the real risk of sufering a physical disability, and the mis-
taken belief that employees are already covered through their
employer, by Social Security or a by combination of the two.
It is also taking an unnecessary risk, since DI is quite aford-
able for most people—though adequate DI coverage does not
appear to be currently available to Foreign Service employees,
as I explain further below.
Many in the Foreign Service are generally aware of the need
for long-term care insurance, partly because it has been in the
news so much in recent years. As the name suggests, LTCI pays
for specialized care provided during an employee’s recupera-
tion from an illness or injury, but does not replace income lost
during that period. In addition, there is an assumption that the
employee will eventually return to work.
When that is not possible, many Foreign Service employ-
ees assume they have adequate employer-provided disability
income protection that will automatically kick in once they are
unable to work. But that is not the case.
If a federal employee becomes disabled and cannot con-
tinue to work, he or she only has the following employer-pro-
vided resources to draw on: accrued sick leave, accrued vaca-
tion time, borrowed or donated sick leave, and the 12 weeks of
unpaid sick leave mandated by the Family and Medical Leave
Act. Once these resources are exhausted, the employee would
normally be terminated if unable to return to work. (Te State
Department’s Ofce of Employee Relations does everything it
can to assist such individuals, but obviously cannot keep them
on the payroll indefnitely.)
When Disability Becomes Permanent
At that point, the disabled employee must depend on his or
her Foreign Service Disability Retirement Pension (and Social
Security, if eligible). And this is where massive confusion
arises. Many employees assume that their disability retirement
pension will approximate their pre-retirement salary, but this
is not usually the case.
Te Foreign Service Pension System rules regarding disabil-
ity retirement state that for individuals who are under 62, but
not yet eligible for regular retirement (i.e., at least 50 years old,
with at least 20 years of federal service), the FSPS disability
The coverage available to
Foreign Service employees is
very limited, precisely because
they work overseas.