In an advance world that prioritizes physical effort and individual productivity, health should always be the first priority, and long-term disability insurance is undeniably an essential component in ensuring this.
In recent years, it has gained significance due to various medical advancements and improvements in living standards.
What is Long-Term Disability Insurance?
Long-term disability insurance (LTD) is an insurance policy that serves as a financial safety net in the event that you become unable to work for a prolonged period due to a disabling illness or injury.
In other words, LTD insurance can replace a portion of your income, typically between 50 and 70 percent, if you’re unable to perform your job duties due to an accident or illness that is not related to your job.
However, the exact duration and coverage of the benefits can vary greatly depending on the policy’s specifics. These types of insurance are usually offered by employers as a part of the benefits package, but they can also be purchased individually.
The Significance of Long-Term Disability Insurance
Contrary to common belief, most long-term disabilities are caused by illnesses such as chronic back issues, heart disease, or cancer, not accidents.
According to data from the Council for Disability Awareness, you have a one in four chance of becoming disabled before retirement. Hence, securing a long-term disability insurance policy is a smart move to protect your earning potential.
One might ask – “Don’t Social Security disability benefits cover this?” Unfortunately, the Social Security Administration’s criteria for disability are very strict, and the benefits are often insufficient to cover all expenses. Long Term Disability Insurance aims to fill this gap.
Differentiating between Short-Term Disability Insurance and Long-Term Disability Insurance
While both types of insurance provide income protection, the time frames they cover differ significantly:
Short-term disability insurance covers a portion of the policyholder’s income for a shorter predetermined period, typically three to six months. Coverage often begins one to 14 days after the policyholder becomes unfit to work.
Conversely, long-term disability insurance covers a much longer period, often several years or potentially until retirement. The waiting period before the benefits kick in is typically 90 days, but it could be longer.
Costs & Factors Affecting It
Like most insurance products, the cost for long-term disability insurance varies based on several factors. The background specifics such as your job, the income you’re trying to protect, your health, lifestyle, and the policy’s specifics can all impact the premium. On average, the cost can range from 1-3% of your annual gross income.
Selecting a Long-Term Disability Insurance Policy
When shopping for a long-term disability insurance policy, it’s essential to evaluate several significant features:
- Benefit Period: This is the maximum length of time benefits will be paid to the policyholder. Common benefit periods are two, five, or ten years, or until the insured reaches retirement age.
- Elimination Period: This is the time frame you must wait after you become disabled and before the start of your benefit period (typically 30, 60, or 90 days, or even six months).
- Benefit Percentage: This is the portion of your salary the policy will pay. Most plans offer between 50% and 70%.
- Disability Definition: Some policies pay benefits if you cannot complete your current job’s tasks, while others won’t pay unless you’re unable to work in any job suitable to your training or skill level.
Conclusion
Long-term disability insurance ensures that if you become disabled and are unable to work for a long time, you will still have income coming in.
Thus, it should feature prominently in your insurance portfolio because safeguarding your earning potential is a sound financial move.
It’s essential to be aware of the intricacies of each policy and consider consulting an advisor to understand which policy might suit your unique situation best.