Maternity leave is an important time for parents. I can speak from experience. You want to enjoy your newborn as much as you can. There’s alot going on during this special time, especially if you are a first-time parent! There is one, important aspect during this timeframe that many couples overlook: money. Who wants to worry about money?! Truth be told, finances are going to be much tighter, with formula, diapers, and countless other things to buy to make your experience easier. Unfortunately, while there are many options for maternity leave, many types of leave are unpaid. Not to worry, because we have some options to fill the income loss during your maternity leave. Supplemental maternity insurance helps fill these income gaps and puts your mind at ease. Some options are better than others, though. In this article, we discuss a better insurance option for paid maternity leave.
Your Options For Maternity Leave
There are several options for maternity leave which we discuss throughout this article. They include:
*FMLA / Unpaid Leave
*Your own Paid Maternity Leave Insurance
Let’s briefly discuss the first three, just so you know your options. We will then discuss developing your own paid maternity leave insurance in more detail.
FMLA / Unpaid Maternity Leave
The FMLA, which is the Family Medical Leave Act, is the foundation of any family medical leave. We aren’t going to belabor or rehash its intentions. Summarizing, the FMLA allows you to, in your case for maternity leave, take up to 12 weeks of unpaid leave from your employer to care for your newborn child. A key component of this Act is that it protects your job upon your return. (Unless, of course, you voluntarily decide to leave your company.)
Is unpaid leave a bad thing? No. Honestly, when my wife and I never had paid maternity leave. We saved and lived off of one income for 3 months. We saved during her pregnancy for all of the newborn items like formula and diapers. While we saved and were conservative, I do, however, wish we had the alternative maternity leave insurance option (discussed further) available to us. Having that would have made our lives a bit easier.
Yet, if you can swing it, unpaid leave could be one of the best options for you. I know what you are thinking. John, you are insane. I have bills to pay and a new baby to clothe and feed. Hear me out. I’ve been there!
Saving and having an unpaid maternity leave allows the development of key financial priorities. If you can live off of one income, and live within your means, you will have the financial flexibility to undertake nearly any situation. Think about it. If you saved 3 months of income, there is no reliance on insurance or any other need. No need to borrow and take on debt. No need to charge your credit cards.
Most of us are not there yet. So, let’s talk about the other ways to obtain a paid maternity leave.
Company-paid Maternity Leave
Many companies grant their employees with paid maternity leave. Companies usually offer the maternity leave in a combination of ways including, but not limited to
(1) sick time
(2) a specific, paid-leave maternity plan
(3) short-term disability insurance
The availability of these options depends on several factors. For example, your company may have a specific work time required for access to these benefits. Additionally, they may require you to access your remaining sick time first before access to other programs. Finally, and we will discuss this more, the carrier for your short-term disability insurance (if they cover maternity leave) may have their own requirements.
It’s important to discuss your options with your HR department, preferably BEFORE you are pregnant.
A handful of states have their own short-term disability fund. These states have different requirements and maximum benefits, so I won’t go into specifics on each. But, generally speaking, you can file a claim for leave through your state disability fund if they classify pregnancy and maternity as maternity leave.
- New York
- New Jersey
- Rhode Island
For example, Rhode Island allows paid leave for pregnancy, although there are specific rules to qualify.
Your Own Paid Maternity Leave Insurance
Obviously, if you don’t have access to a company leave plan, or live in one of the 5 states with their own fund, you can create your own paid maternity leave by using different types of insurance. Even if you do have access to a company leave plan, you may want to use this insurance to supplement your paid maternity leave.
You have a couple of options. The more common option is using a short-term disability insurance policy that defines a normal pregnancy. However, this may not be your best option for a paid maternity leave. Why? It all has to do with short-term disability insurance costs.
What is that, John, you ask?
Well, short-term disability insurance premiums can be very expensive for the benefit. Additionally, carriers that consider pregnancy and maternity as a qualified, disabling condition under a short-term disability insurance policy typically have limitations on the benefits. Most carriers have a:
4 to 6 week benefit for normal pregnancy, and
6 to 8 week benefit for cesarean delivery
Additionally, they have a 12 month waiting period before benefits are paid for a normal pregnancy. In other words, you have to pay a year before the plan pays benefits for a normal pregnancy.
Think about that. Is that benefit worth the cost of short-term disability insurance? Does that sound like a good option? Only 4 weeks paid for a normal pregnancy? In our opinion, no. We give a good, real example in the article. You’d spend $3,600 for a $4,500 benefit. Does that seem like a good deal? Not really.
We have a better insurance option if you want paid maternity leave. We discuss that next.
A Better Option For Paid Maternity Leave
Of course, short-term disability insurance from your employer, subsidized, could be a viable option. It’s always best to analyze your own needs and situation.
But, there is a better option, in our opinion.
Have you ever heard of a hospital indemnity plan?
These plans are increasing in popularity because of the, let’s call it what it is, unaffordability of traditional health insurance.
Hospital indemnity plans (also known as gap insurance plans) pay a dollar benefit to you, based on a specific hospitalization or doctor visit. You can use the benefit to offset the cost of your deductibles, copay, and coinsurance.
Or, you can use the benefit for whatever you want. You see, hospital indemnity insurance does not coordinate with your underlying health insurance. It just pays you the dollar benefit based on your policy, and you can use the money however you want.
These plans usually pay a lump-sum dollar benefit upon admittance to the hospital. Additionally, they pay a daily benefit while in the hospital. Other plans have options for outpatient benefits such as surgery, diagnostic testing, etc.
That is great, John, you say. But what does this all mean?
Well, what is one reason women go to the hospital? (Hint: it is the subject of this article.)
Right! For pregnancy!
Technically speaking, these plans pay a benefit upon the birth of your child. You can then use this money (we discuss in more detail) during your maternity leave. Essentially, you created your own paid maternity leave using hospital indemnity insurance. Do you see what we mean?
While this all sounds good, we are transparent agents. Let’s talk about these plans in more detail. It’s important that you understand these plans and match their benefits to your own situation.
Specifics Of Hospital Indemnity Insurance
Not all hospital indemnity insurance is created equal when it comes to pregnancy. While nearly all of them pay a benefit for complications of pregnancy, nearly all of them do not pay a benefit for a normal pregnancy.
All, but really two of them.
We will discuss one of them here.
One of the plans we like pays up to $6,350 for a lump sum benefit upon admittance to the hospital. They also pay up to $200 per day while in the hospital. Their base plan also reimburses $50 for a doctor visit up to 2 times per year, so you always get something back as long as you go to the doctor.
Optional benefits include $3,000 for outpatient surgery and an ER benefit of $250.
What’s the cost of all of this? Well, for a 30-year-old woman, the premium is $22.86/month for the base policy. Add the $3,000 outpatient benefit and the ER benefit, the total cost is $48.19/month. How does that sound? Yes, pretty good. Add your spouse, and the total cost is $84.73/month. This means you each receive these benefits.
This is a very affordable way to receive money for your pregnancy and maternity leave. Remember, you can use the benefits for anything you want. You can use the benefit for your medical bills or your everyday needs. You can supplement this plan with your company-sponsored short-term disability insurance benefit. Additionally, you can enroll in the other plan we discussed (not the subject of this article, but it is available).
Benefits Of Hospital Indemnity Insurance For Childbirth
So, for childbirth, you would receive the lump sum benefit of $6,350 and any additional benefit based on the number of days in the hospital. That sounds great, right. And, affordable. Benefits are immediate, with the except of pre-existing conditions. There is a 12-month look-back for pre-existing conditions and then a 12 month look forward on those conditions. So, for example, if you have high blood pressure and go to the doctor regularly for a checkup, those doctor visits in the first 12 months of the plan won’t be covered. After the 12 month period, they will be.
What does this have to do with pregnancy?
Well, a pregnancy is considered a pre-existing condition. So, you can’t be pregnant and apply for this policy. Actually, the carrier will decline you if you are.
Stated another way. If the start date on this policy is November 1, 2018, then childbirth must occur after October 31, 2019.
That is how this carrier operates. We work with another carrier than has a 10 month waiting period, but it is more expensive.
However, you really can’t beat the premium on this plan for the benefit, can you?
Which leads us to an important point. This product is designed to help you with the gaps in your underlying health insurance. It is NOT paid maternity leave insurance. What we have written is that it can be used as supplemental maternity insurance. You can use the lump sum payout to help you out in the months while you are with your child. Additionally, you can use the benefit to pay for your medical bills.
Having said this, it is important you understand who the right person is for this insurance. We discuss this next.
People Who Can Use The Hospital Indemnity Insurance
We receive phone calls from many people who want this insurance. Then, after the baby is born or after they receive their benefit, they intend to cancel.
Honestly, if you are going to do this, don’t call us.
This is not how insurance works. The purpose of insurance is to protect you from a financial loss.
The right person for this insurance is one who will hold onto it for a very long time. Sure, the carriers will pay a benefit upon childbirth (provided you meet their guidelines). You can then use this money to help you during your maternity leave. As we have shown, however, for a very small premium, you can pretty much ensure your deductibles, coinsurance, and out-of-pocket costs are covered. That means you likely can adjust your health insurance and save more money on premiums. Invest those premium savings from your health insurance, and it is a win-win for all.
If you think you are healthy and nothing will happen to you, then think again. I am young and healthy, too, and had unexpected surgery. This policy helped pay our medical bills from my surgery.
So, if your intention is to cancel this policy after your baby is born, you are better off just saving your money.
Summary of Maternity Leave Insurance
Let’s recap what we have discussed.
There are many types of maternity leave, although many types are unpaid.
Using a hospital indemnity insurance policy that covers normal pregnancy helps. You’ll receive a lump sum dollar benefit that you can use during your maternity leave. Hence, you have created your own paid maternity leave using this insurance.
We are aware of two carriers that allow coverage for a normal pregnancy. Between the two, you could receive $11,350. The premium for both would probably cost around $120/month.
Additionally, this insurance covers you for doctor visits, imaging, outpatient surgeries, among many other situations.
With this insurance, you could, conceivably, increase the out-of-pocket maximum on your underlying health insurance. Your premiums would decrease. Invest these savings, and you are essentially covering the cost of the hospital indemnity insurance premium. It’s a win-win.
You can create your own paid maternity leave using hospital indemnity insurance. The plan needs to cover pregnancy. There are a couple of plans that allow coverage for pregnancy. You can use this in conjunction with any benefits or paid leave from your employer.
The application process is simple and easy.
Would you like to learn more? Feel free to contact us or use the form below. As always, we only work in your best interests. That means we recommend and, if you decide to work with us, provide solutions based on your needs and situation only.