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I just became a regular employee (with benefits) at my company. New in 2005, the 401(k) plan has the option of purchasing 401(k) Disability Protection. Because I did not have a 401(K) plan with the company last year, I cannot contribute. However, after reading the plan description below (which I copied from the website), I wondered if this was a good plan.

The plan work like this:

If you are unable to work due to a serious injury or illness, the XXX (where XXX is the company name) Savings Plan does not permit you or XXX to make further Before-Tax, After-Tax or Company Match contributions once your XXX Short-Term Disability Plan or XXX Sickness and Accident Income Plan (collectively the "XXX Short-Term Disability Plan") benefits stop. The 401(k) Disability Protection Program is insurance that will continue your Before-Tax and/or Company Match contributions (as you choose) in the event of long-term disability. You can purchase this insurance through premiums deducted from your XXX Savings Plan account balance each month. If you enroll in this program, the insurance proceeds will continue your contributions in accordance with the terms of the 401(k) Disability Protection Program.

To enroll in 401(k) Disability Protection for the upcoming year, select the level of coverage that best meets your needs. You may choose to insure your Before-Tax contributions, the XXX Company Match, or both, by making the appropriate selection below. In each case, the covered amount is equal to your contribution (Before-Tax, Company Match or both) during the calendar year prior to the calendar year for which you are purchasing coverage. For example, 2005 coverage is based on actual 2004 contribution amounts.

I calculated that my insurance premium would be $4.05 per month, which is $48.60 a year to insure both before-tax contributions and the company match.

Is this a good plan?

My instinct is that it is a waste of money. But what do I know? If I were to become permanently (or at least for a very long time) disabled, then the insurance would definitely be worth it.

What are your thoughts?

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