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Disability insurance benefit period
Disability insurance doesn’t last forever. Your insurer will pay you up to a specific period of time — and this is known as the benefit period.
You choose your benefit period when you purchase disability insurance, and depending on your policy, it could last months, years or even decades. Your benefit period impacts how long you’ll receive money from your insurer if you’re disabled, and how much you’ll pay for coverage.
What is the benefit period?
The benefit period is the length of time your insurer pays your disability insurance benefits. Once the elimination — or waiting — period ends, the benefit period begins and you’re eligible to collect benefits.
Typically, your insurer sends you a check at the end of each month. They’ll stop sending checks when you return to work or when your benefit period ends — whichever comes first.
How does the benefit period work?
When you apply for a disability insurance policy, you’ll choose a benefit period offered by the insurer.
The benefit period is what sets the two main types of disability policies apart. Short-term disability policies have shorter benefit periods, and long-term disability periods have longer benefit periods.
Short-term disability
Short-term disability policies are designed to replace your income for a short time. If you become disabled, you’ll typically receive benefits for 30 to 180 days.
Some insurers, like State Farm, offer short-term disability policies with one- to three-year benefit periods — but that’s rare.
Long-term disability
Long-term disability plans cater to long-term needs, and the benefit period is structured differently. After the elimination period is up, your insurer pays out benefits up to a specific age, or for a set number of years.
These are the most common benefit periods for long-term disability plans:
- To age 65
- To age 67
- To age 70
- Until retirement age — which is either 65 or your retirement age under Social Security
- 2 years
- 5 years
- 10 years
- Lifetime
Let’s put this into context. Say you select the benefit period “to age 65.” If you become totally disabled, you’ll receive your last check on your 65th birthday — regardless of when you bought the policy or when your disability began.
What’s a limited benefit period?
This refers to a benefit period that’s capped at a certain number of years, like two, five or 10.
Some people opt for a limited benefit period to lower the expense. Others have no choice. If you have a serious health condition or a family medical history of cancer, stroke, diabetes or high cholesterol, your insurer might consider you too risky for full coverage.
Did you know? You might be able to split your benefit period
Some insurers offer disability policies with split benefit periods. With these policies, you can choose a benefit period for disabilities caused by an illness, and another for disabilities due to an accident.
If your insurer offers this type of plan, it will most likely provide a two- or five-year benefit period for disabilities as a result of sickness, and a lifetime benefit period for disabilities arising from accidents.
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Updated February 25th, 2020
Is it worth choosing the “until retirement age” benefit period?
There are a few situations where a long-term disability policy that pays out “until retirement age” makes sense:
- If you’re in a specialty occupation that requires a specific skill set. For example, a surgeon needs high cognitive function, precise motor skills and quick reflexes to do their job properly. If you became disabled and lose those skills, you’d benefit from a disability policy with a benefit period that stretches until retirement. It can protect you from future income loss and pay out until your Social Security kicks in.
- If you have a lot of debt to your name. To use the same example, a disability policy that lasts until retirement could help a surgeon who’s working to pay off their student debt. You could use your disability benefits to repay your loan and keep your credit in check.
Does the length of the benefit period affect premiums?
Yes. The longer the benefit period, the more you can expect to pay for coverage.
While no-one can predict a disability, it’s helpful to have an idea of how long the average disability claim lasts. In the US, it’s 31.6 months — or a little over two-and-a-half years — according to the most recent data from the Council for Disability Awareness.
With this stat in mind, a five-year benefit period is enough to cover most people.
Bottom line
Disability insurance policies have a benefit period, which is the maximum length of time your insurer will pay benefits. When you’re choosing a benefit period, there’s no “right” answer. The best one for you comes down to your budget, occupation and whether or not you have other insurance coverage.
If you’re in the market for disability insurance, be sure to compare providers to get the strongest possible policy and premium.
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