Long Term Disability Insurance: Protecting Your Future

Long term disability insurance is a type of insurance that provides financial support to individuals when they are unable to work due to a disability. It offers protection by providing a portion of the insured person’s income, which can be used to cover monthly expenses and other necessities.

What is Long Term Disability Insurance?

Long term disability insurance is a type of insurance coverage that provides benefits to individuals who are unable to work due to a disability. The coverage may provide for a portion of the insured’s income, which can help to cover monthly expenses such as rent or mortgage payments, utilities, and food. The coverage may be provided by an employer or purchased by an individual as a standalone policy.

The benefits provided by long term disability insurance are typically paid out on a monthly basis and can continue for a predetermined period of time or until the insured person reaches retirement age. In general, the longer the benefit period, the higher the premium cost. Some policies may also offer additional benefits such as rehabilitation services or return-to-work programs.

How Does Long Term Disability Insurance Work?

Long term disability insurance works by providing financial protection to individuals who are unable to work due to a disability. If an insured person becomes disabled and is unable to work, they can file a claim with their insurance company. The insurance company will then review the claim and determine whether the individual is eligible for benefits.

The criteria for eligibility may vary depending on the policy, but typically a person must meet the definition of disability as defined by the policy in order to receive benefits. This definition may vary, but generally requires that the person be unable to perform the duties of their own occupation or any other occupation for which they are reasonably qualified.

Once the person is deemed eligible for benefits, the insurance company will begin paying out a portion of their income on a monthly basis. The amount of the benefit is typically a percentage of the person’s pre-disability income, up to a certain maximum amount. The benefits will continue for the duration of the disability or until the end of the benefit period, whichever comes first.

Why Do I Need Long Term Disability Insurance?

Long term disability insurance is an important form of protection for anyone who relies on their income to cover their monthly expenses. Without this coverage, a disability could result in a loss of income and financial hardship.

While many people may believe that they are covered by workers’ compensation or Social Security Disability Insurance (SSDI), the reality is that these programs may not provide adequate coverage. Workers’ compensation only covers disabilities that are job-related, while SSDI is difficult to qualify for and provides only modest benefits.

Long term disability insurance can provide a more comprehensive form of protection, one that is tailored to an individual’s specific needs. It can help to ensure that the person’s monthly expenses are covered and that they are able to maintain a certain standard of living in the event of a disability.

How Much Coverage Do I Need?

The amount of long term disability insurance coverage that is needed will vary depending on the individual’s income, monthly expenses, and other financial obligations. In general, experts recommend that individuals should aim for coverage that provides at least 60% of their pre-disability income.

It’s important to carefully consider factors such as mortgage or rent payments, monthly bills, and other expenses when determining the appropriate level of coverage. Some policies may offer a variety of benefit periods and options, allowing individuals to tailor the coverage to their specific needs.

Types of Long Term Disability Insurance

There are two main types of long term disability insurance: employer-provided coverage and individual policies.

Employer-Provided Coverage

Employer-provided long term disability insurance is typically offered as part of an employee benefits package. The coverage may be fully paid for by the employer or may require the employee to contribute to the cost. The policy may also have restrictions, such as a waiting period before benefits begin or a limit on the amount of coverage provided.

One advantage of employer-provided coverage is that it is often less expensive than purchasing an individual policy. However, it may not offer the same level of customization or flexibility as an individual policy.

Individual Policies

Individual long term disability insurance policies are purchased directly by the insured person. The policy may have more flexible terms and options, allowing the person to tailor the coverage to their specific needs. The policy may also carry a higher premium cost than employer-provided coverage.

One advantage of purchasing an individual policy is that the coverage is portable, meaning that it can be taken from job to job. It also provides greater peace of mind, as the person knows that they are covered even if they change employers or become self-employed.

Who Should Consider Long Term Disability Insurance?

Anyone who relies on their income to pay monthly expenses should consider long term disability insurance. This may include individuals who are self-employed, those who do not have access to employer-provided coverage, or those who have limited savings or assets.

Long term disability insurance can also be beneficial for individuals who work in high-risk professions, such as construction or manufacturing, or who have a family history of medical issues.

What Should I Look for in a Long Term Disability Insurance Policy?

When selecting a long term disability insurance policy, there are several factors to consider:

  • The definition of disability: Make sure the policy’s definition of disability is clear and favorable to the insured.
  • The benefit amount: Ensure that the policy provides a sufficient amount of coverage to meet monthly expenses.
  • The benefit period: Consider the length of the benefit period and how it aligns with the person’s retirement age.
  • Exclusions and limitations: Review the policy for exclusions or limitations that may restrict coverage.
  • Premium cost: Compare the premium cost with the level of coverage provided to ensure that it is reasonable.

FAQ

What is the waiting period for long term disability insurance?

The waiting period for long term disability insurance varies by policy, but is typically between 30 and 180 days. During this time, the insured person will not receive benefits. The waiting period is designed to prevent individuals from purchasing coverage only after they become disabled.

What is the elimination period for long term disability insurance?

The elimination period for long term disability insurance is the amount of time that must pass after the onset of a disability before benefits are paid. This period can vary from policy to policy. Generally, longer elimination periods will result in lower premium costs.

Can I receive workers’ compensation and long term disability benefits at the same time?

It is possible to receive both workers’ compensation and long term disability benefits at the same time, but the benefits may be offset by one another. This means that the amount of long term disability benefits received may be reduced if the insured person is also receiving workers’ compensation benefits.

Is long term disability insurance taxable?

The taxability of long term disability insurance benefits depends on how the coverage was paid for. If the policy was purchased with after-tax dollars, the benefits are typically not taxed. However, if the policy was purchased with pre-tax dollars or through a cafeteria plan, the benefits may be subject to taxation.

Can I cancel my long term disability insurance policy?

Yes, it is possible to cancel a long term disability insurance policy at any time. However, it’s important to carefully consider the consequences before doing so. Cancelling a policy may result in the loss of coverage and could leave the insured person vulnerable to financial hardship in the event of a disability.

How much does long term disability insurance cost?

The cost of long term disability insurance varies depending on a variety of factors, including the amount of coverage needed, the length of the benefit period, and the insured person’s age and health status. Generally, policies with longer benefit periods and higher coverage amounts will have higher premium costs.

Conclusion

Long term disability insurance is an important form of protection for anyone who relies on their income to cover their monthly expenses. It offers financial support in the event of a disability, ensuring that the person is able to maintain a certain standard of living and cover essential expenses. When selecting a policy, it’s important to carefully consider the terms and options to ensure that the coverage meets the person’s specific needs.