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If you rely on your paycheck to survive, long-term disability insurance can provide peace of mind. If you fall seriously ill or injured, this policy pays out a portion of your income for a specified time frame. While premiums can be costly, you can save by choosing a longer waiting period.
Long-term disability (LTD) insurance pays a percentage of your income if you suffer a covered illness or injury and can’t work. It typically replaces 40% to 60% of your paycheck for 2, 5 or 10 years, or until you reach retirement age.
Is it the same as total and permanent disability insurance?
Yes. Total and permanent disability insurance is the Australian term for disability insurance — which is what it’s known as in the US.
To receive disability insurance benefits, you need to meet your insurer’s definition of disability. Typically, this means you’ll have to prove you’re ill or injured and can’t work for a period of time. And if you don’t, a partial disability rider can help you bridge the gap.
There are two key elements of long-term disability insurance: the elimination period and the benefit period.
If you become disabled, the elimination period begins. This is the amount of time you’ll wait before you start receiving benefits. Long-term plans usually come with an elimination period of 30, 60, 90, 180, 360 or 720 days — and 90 days is the most popular choice. If you have short-term disability insurance, that coverage can bridge the gap until your LTD policy kicks in.
Once the elimination period is over, your insurer pays out benefits up to a specific age, or for a set number of years. This is known as the benefit period, and you’ll need to select one when you apply for a policy.
The standard benefit period options for long-term disability plans are:
Let’s say you select the benefit period “to age 70.” If you become totally disabled, you’ll receive your last check on your 70th birthday — regardless of when you bought the policy.
After the benefit period has passed, you’re no longer eligible to collect benefits.
Long-term disability caters to long-term health conditions. While every insurer defines disability differently, it typically covers:
Long-term disability plans discount childbirth as a disability. But if you experience complications as a result of pregnancy, your plan will likely apply. For example, you could be eligible for benefits if you’re on doctor-ordered bed rest, or need more time to recover from an emergency C-section.
Around four in 10 companies offer some type of disability insurance as part of their employee benefits, according to LIMRA’s Life Insurance Barometer Study 2019. If yours does, your employer may subsidize your premium.
If you don’t have access to LTD through the workplace, you can purchase an individual policy on your own. By going down this path, you’ll be able to customize your coverage and choose the best benefit and elimination period for your needs.
If you’re offered a group policy through your work, look for these terms to fully understand your coverage:
While your salary is taxed, your disability insurance benefits aren’t — so your checks could come close to your take-home pay.
Unfortunately, your premiums aren’t tax-deductible.
Both types of coverage protect your income, but they differ in terms of how long they last and the percentage of your paycheck they replace.
These are the key features of long- and short-term disability insurance.
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While health insurance can cover many illnesses and injuries, the coverage is far from exhaustive. That’s where disability insurance comes in. If you become disabled and can’t work, your policy will replace a percentage of your paycheck and help you to pay for your living and medical expenses.
If you’re still working and don’t have substantial savings, consider long-term disability insurance. While it’s more expensive than short-term disability, it covers a longer list of illnesses and injuries, including arthritis, back pain, heart disease and mental health conditions.
It lasts longer, too. Your benefit period can span several years, or until you reach retirement age and Social Security kicks in. To put this into context, the average long-term disability claim lasts just under three years, according to the Center for Disability Awareness. But if you’re seriously ill or injured, LTD can potentially cover you for the rest of your working life.
Who has the greatest need for long-term disability insurance?
As the truest form of income protection, LTD makes the most sense for these groups of people:
Additionally, if you’re an employee with access to group disability coverage, it’s worth taking advantage of that benefit. Your premiums will typically be subsidized or completely paid for by your employer, making this a low-cost way to protect your paycheck.
Long-term disability insurance replaces part of your take-home pay if you become ill or injured and can’t work. It covers a comprehensive list of physical and mental conditions, including common and chronic issues like back pain. But while it can last years or even a lifetime, the maximum monthly benefit is usually between 40% and 60% of your salary.
Explore your options by comparing disability insurance companies.
When will my life insurance policy cover disability?
Most life insurance policies don’t have built-in clauses for disability, meaning they won’t pay out if you experience a disability. However, some insurance companies allow you to add certain riders to your policy that will step in if you become seriously ill or injured and can’t work.
How often are long-term disability benefits paid out?
Generally, you’ll receive a check each month during the benefit period.
What happens if I’m disabled but can still work?
It will come down to your insurer’s definition of disability. There are two types of plans:
Before committing to coverage, ask your insurer which definition applies to its disability policies.
Katia Iervasi is a staff writer who hails from Australia and now calls New York home. Her writing and analysis has been featured on sites like Forbes, Best Company and Financial Advisor around the world. Armed with a BA in Communication and a journalistic eye for detail, she navigates insurance and finance topics for Finder, so you can splash your cash smartly (and be a pro when the subject pops up at dinner parties).
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