Long Term Disability (LTD) Insurance
Disability in any form can prevent a person from making a living. However, some people are fortunate as they can tap into their savings or cash value life insurance policy for their survival for a few months without working, while other can’t afford to stop working for long periods of time. This is where Long-Term Disability Insurance comes to the rescue.
It is the types of insurance policy that offers the beneficiary a monthly income for extended periods of time until they can resume their regular job. Group LTD insurance is purchased by the employer on their employee’s behalf, while you can also purchase individual LTD insurance. The focus of this article will be on individual long-term disability insurance.
Best Long Term Disability Insurance for Individuals
In the sections that follow we will do our best to give a broad overview of private long-term disability insurance, including the pros and cons, and provide definitions of the various features and provisions that you might want to consider when designing your own individual policy.
What we want to do here is speak to what the best long-term disability insurance for individuals should look like and why you may want to consider disability income insurance on yourself.
Ideally, you will want a policy that covers you for your specific line of work or profession. For example, if you are a surgeon, you will want a policy that covers you for your own occupation, not just being a medical doctor. That way, if your disability prevents you from being a surgeon, your policy will pay out if you are unable to continue doing surgeries, even if you get another job in the medical profession.
You benefit period will determine how long you receive your disability income. You will generally have the choice of policy design with the benefit period lasting 2, 5, 10 years or to age 65, to age 67 or even longer with some providers and policies. Any benefit period over to age 67 will be guaranteed renewable but not noncancelable.
Guaranteed Renewable vs Noncancelable
If your policy benefit period goes to age 65, then typically it will be guaranteed renewable to age 65. Guaranteed renewable to age 65 simply means, as long as you pay your insurance premiums, the insurance company cannot cancel your policy until the policy expiration date. However, the insurance company does retain the right to increase your premiums, unless the policy is also noncancelable.
A disability insurance policy that has a noncancelable provision keeps the premiums level (i.e. fixed) for the policy’s duration. If you are someone who likes a sure thing and does not want to be surprised with a potential premium increase down the road, getting a noncancelable disability insurance policy is a must.
Monthly Benefit Amount
You can choose a lower amount to save on your premiums, but the maximum disability insurance amount ranges from 50-60% of your current salary. The insurance provider will look at what you made over the last year to determine how much disability income benefit to pay out.
You elimination period is your waiting period that must pass before you begin to receive your disability income benefit. The longer out you go, the lower your premium but the longer you have to wait to get paid from the insurance company. You can choose from as early as 30 days, with as far out as 730 days.
Long-Term Disability Insurance Quotes
Due to the numerous variables involved in designing the policy, sample long-term disability insurance quotes are tough to provide. Any examples would most certainly just be ballpark numbers to give you an idea of what long-term disability insurance costs.
Some of the following criteria will be used to determine how much long-term disability costs for you. Criteria such as:
- Your Occupation
- Your Health
- Your Lifestyle
- Your Income Need
Typically, you can assume your annual disability insurance rates will run between 1-3% of your annual salary. For example, if you make:
- $75,000 annually, your disability insurance premium would be $750 – $2,250 annually
- $100,000 annual income, disability insurance premium $1,000 – $3,000
- $125,000 annual income, disability insurance premium $1,250 – $3,750
- $200,000 annual income, disability insurance premium $2,000 – $6,000
- $250,000 annual income, disability insurance premium $2,500 – $7,500
Please note, there are also maximum benefit amounts that insurance companies will offer.
Long-Term Disability Insurance Explained
There are two types of disability income insurance: short-term and long-term. Short-term disability insurance generally lasts a few months, and up to two years maximum. Short-term disability policies are best when provided by an employer and don’t make a lot of sense for someone who is self employed, considering an individual short-term disability insurance policy.
In contrast, Long-Term Disability Insurance would be defined as a type of insurance policy that covers the insured with a portion of their monthly income when they are absent from their job for an extended period due to a covered disability. The disability can result either from injuries, accidents or illnesses which happened off or on the job.
This is a crucial type of insurance for employees, but even more so for self employed individuals because any savings you may have put away over the years may not be sufficient to cover the financial burdens from injuries, illness and their expenses beyond paid sick leaves.
The LTD insurance policy helps the insured pay off their medical bills and other expenses and bills when they are unable to work due to covered claims. It can be the difference between solvency and bankruptcy.
Long-Term Disability Insurance usually kick starts just after any existing short-term disability policy runs out, typiucally after 10-53 weeks of the eligible events and an average of 26 weeks.
Is having health insurance and workers’ compensation enough to cover disability?
- Disabling Injuries can happen to anyone and LTD coverage is a must since disability in any form can change your life significantly. LTD insurance works as income replacement in difficult financial times when you are away from your regular job due to illness or injury and would otherwise lack an income source.
- Typical health insurance plans only cover the medical bills, but not the rent and daily expenses and this is where Long-Term Disability Insurance comes into play.
- Workers’ Compensation will only pay you for work related injuries and accidents, making it arduous to qualify for. Workers’ Compensation for Long term disability may be difficult to keep if you have to continually show that you are NOT able to return to any occupation. Unless you are permanently totally disabled, your compensation will be based on your “impairment rating” or “permanent disability rating”, which can vary depending on your state and severity of your partial disability.
- The main point is, both health insurance and workers’ compensation are not adequate replacements for private long-term disability insurance.
Long-Term Disability Insurance Pros
Long-Term Disability Insurance is widely popular among self employed business owners and entrepreneurs in the U.S. as it offers them a stable financial safety net, allowing you and your family the peace of mind knowing that coverage for essential daily expenses during the extended injury, illness or disabling accident, on or off the job, will be covered.
As mentioned above, short term disability policies may be better supplemented by a “rainy day” fund. However, due to the uncertainty of the extent of long-term disability, no amount of rainy day fund is enough to offset the cost of suffering through long term disability.
Here is a closer look at more of the pros and advantages of long-term disability insurance:
Covering Essential Living Expenses: The LTD Insurance money can be used to pay your groceries, utilities, clothing, car payments, mortgage, insurance and all other daily expenses. You can essentially use your disability benefits for whatever you need once you qualify.
Rehab Incentives: There are some LTD Insurance plans that are designed to provide coverage which includes financial incentives to help the employees resume working as soon as they are healthy enough.
Direct Monthly Payments: Under the LTD Insurance plan the employees will receive a portion of their monthly salary paid directly every month.
Easy Claims Filing Process: You can report your disability insurance claim online at the website of the insurance provider or you can make a claim via phone by calling the customer service center of the disability insurance provider in order to begin receiving disability benefits.
Return to Work Coordinators: Some disability insurance providers also provide opportunity to access legally knowledgeable and clinically qualified specialists with over decades of experience in clinical field to help get you back to work.
Asset protection: If you currently contribute to your 401k plan, IRA or LIRP, your disability income would help you keep funding your retirement vehicles. Otherwise, the time you fail to fund your plans will severely handicap your future retirement income.
Quality of Life: Take a moment and reflect on what your life would look like if your income stopped. Your lifestyle would change dramatically. Many people are forced into bankruptcy, lose their home and ultimately their marriage.
Cons of Long-Term Disability Insurance
The biggest drawbacks associated with Long-Term Disability Insurance are:
Price: Long-term disability insurance adds an additional financial burden to your budget. You can expect to pay $100 to $500 more a month depending on your age, health and business/profession type.
Your LTD insurance cost also depends on the policy’s definition of “total disability”, benefit period, monthly benefit amount and elimination period. However, all of these can be tailored to fit into your ideal budget.
Elimination Period: A long waiting period before you receive your disability benefits is a drawback. However, you can shorten the elimination period by paying a higher premium.
Must Qualify For: Another potential long-term disability insurance pro or con, depending on which side you fall, is that it must be qualified for. Any pre-existing condition may preclude you from getting covered or a pre-existing condition may make your premium too high.
Own occupation & Any Occupation:
It is important to understand the distinction between these two terms, as it can mean the difference between receiving your disability benefits or not. Also, be aware that different insurance companies have different definitions of own occupation and any occupation as it relates to total disability and partial disability.
Own-occupation disability insurance
As the name implies, “own occupation” means that if you are deemed disabled and unable to perform your current profession then a LTD insurance claim will be triggered. Even if you return to work at another occupation, if your policy is own occupation disability insurance, you will still receive your income benefit on top of your income at your new job.
Any occupation disability insurance
On the other hand, if your policy has the clause for “any occupation” then this means that after an insurance carrier’s appointed examiner has assessed if the insured has any other transferable skills to make a living or partially be able to work in any profession, then you can be denied full or partial disability insurance benefits. In order to receive your disability benefits under an any occupation definition of disability, you cannot be able to return to any gainful employment.
What Injuries or Illnesses Trigger A Long-Term Disability Insurance Claim?
There are presumptive total disability scenarios where the insurance companies simply presume you are totally and permanently disabled. Some examples of presumptive disability injuries would be a complete and irrecoverable loss of hearing, speech, sight or use of both hands, both feet or one hand and one foot.
In general, Long-Term Disability Insurance provides coverage for all types of illnesses and injuries incurred either during the job or off the job. Some of the common types of injuries that are covered include:
- Back pain
- Heart attack
- Strains and sprains
- Coronary artery diseases
- Pregnancy complications
Please note, different disability insurance companies cover different injuries and illnesses. As a result, it is important to understand the different exclusions in each policy.
When Will The LTD Insurance Benefits Start?
LTD Insurance benefits typical start just after you reach the end of your elimination period.
Elimination period is the plan defined period that starts with the date from when you are disabled from your work and the number of days you must stay disabled to start receiving long-term disability income benefits.
If you are investing in an Individual Long-Term Disability Insurance policy, then consider choosing the coverage based on how long you can manage without your monthly salary.
If you have savings which can cover your expenses when you are not working, then consider choosing a longer elimination period. The longer the elimination period, the lower the monthly premiums would be for your long-term disability plan.
Long-Term Care Insurance vs Long-Term Disability Insurance
There are some key distinctions between long-term care insurance (LTCI) and LTD insurance.
Specifically, LTCI kicks in when a qualifying illness or injury prevents the insured from accomplishing 2 of 6 activities of daily living or the insured suffers a severe cognitive disability that puts the insured’s safety in jeopardy, such as Alzheimer’s Disease.
In contrast, long-term disability insurance does not require the same strict requirements. With most LTD insurance policies, the insured only need not be able to work at his or her current occupation for an extended period of time due to an illness or injury.
Long-term care insurance is not going to replace your income. Rather, it will be used to cover the costs associated with long-term care services.
Long-Term Disability Insurance Coverage Terms & Responsibilities
Always keep in mind these 2 key components that every Long-Term Disability Insurance package includes before making your purchase:
- Once you are diagnosed as disabled by your physician you can begin your disability claim.
- In order for your disability claim to be begin your elimination period must pass. Your elimination period starts on the date you were diagnosed as disabled.
- An elimination period typically lasts between 90 and 180 days, but this can be adjusted up or down according to your budget, needs and objectives.
- Typically, the maximum benefit amount paid during a claim ranges from around 50-60 percent of your current monthly salary upon becoming disabled.
- You can add inflation riders, also known as cost-of-living adjustments (COLAs), to increase your disability benefit amount over time.
- A waiver of premium provision in your policy allows you to forgo any future disability premium payments once your benefit period begins.
Is Buying Individual Long-Term Disability Insurance Worth it?
If you become disabled, then yes, long-term disability insurance is worth it. You can see how much it would run by giving us a call for free long-term disability insurance quotes.
If you are working in an organization where no Long-Term Disability Insurance is offered by the employer or if you think that the group disability insurance by the employer doesn’t provide adequate coverage, then it is worth buying your own Individual Long-Term Disability Insurance plan.
Additionally, for self-employed entrepreneurs or business owners, LTD insurance should be considered a high priority for any asset protection and wealth building plan.
Most of the Individual Long-Term Disability Insurance Plans come with features that enable the benefits to stay on par with the raise of rates and salary increments, like the cost of living adjustments which will add additional percentage to the benefits every year.
As everyone will agree, disability insurance is a crucial add on to anyone’s insurance portfolio because it provides protection to the insured during unexpected events in their life. So, professionals who are highly dependent on their monthly income need to be protected with Long-Term Disability Insurance.