long term disability insurance

Do I Need Long-term Disability Insurance?

The Need for Long-term Disability Insurance

Could you maintain your current lifestyle if you lost your ability to work and earn income? Long-term disability (LTD) insurance provides financial protection for people who can no longer provide for their families due to illness or injury.  

The reality is 7 in 10 Americans live paycheck to paycheck. Part of financial wellness is protecting yourself against financial risk. Being diagnosed with a serious illness that keeps you out of work for an extended period of time can be financially devastating.

Long-term disability can help you:

  • Protect your paycheck.
  • Continue to provide for your family.
  • Avoid tapping into retirement savings or other assets to cover basic living expenses.
  • Avoid going into debt to pay bills.
  • Reduce overall stress and stay focused on getting better.
  • Get back to work sooner.

What is long-term disability insurance?

LTD insurance replaces a portion of lost earnings if you’re unable to work due to an extended illness or disabling injury. It helps cover essential expenses and is a powerful defense against disruption to your way of life.

What are the benefits of long-term disability insurance?

Long-term disability insurance is a good investment for most people because it dramatically reduces the risk of financial setbacks should you become disabled. 

Without a policy, that period with no income could make it hard to afford everyday necessities, support your family or keep up with savings and retirement goals.

How does long-term disability insurance work?

Long-term disability insurance is typically offered through your employer. You pay premiums for LTD coverage and file a claim should you become disabled. The premiums may be paid by you, your employer or both.

If your employer doesn’t offer LTD insurance, or you’re self-employed, you can still buy a policy; however, a medical exam may be required.

To qualify for LTD benefits, you must meet your insurance policy’s definition of disability for 90 – 180 days before the insurance company will begin paying benefits. This is typically known as the waiting period or elimination period. After the “waiting/elimination period,” you’ll receive monthly payments equal to a percentage of your salary while you can’t work.

The amount paid out, when payments start, and how long they last depend on your individual policy.

What does long-term disability insurance cover?

Your LTD policy will include a definition of disability that details what types of illness or injury qualify you to receive benefits. Common reasons to file an LTD claim include:

  • Musculoskeletal disorders
  • Cancer
  • Physical injuries, such as bone fractures, sprains and strains of muscles and ligaments
  • Mental health treatment
  • Circulatory

When do long-term disability payments start?

Every disability insurance policy has an elimination period, which dictates how long you need to be disabled before your benefits start to pay out. 

Long-term disability policies usually have an elimination period of 60, 90, 180, 365, or 720 days. The shorter the elimination period you choose, the more expensive your policy.

How much does long-term disability pay out?

You can receive up to 60% of your gross monthly income while you’re disabled. The benefit period, or how long you receive payments, can last for two, five, or ten years, or until retirement. 

Like other policy features, the higher your benefit payments and the longer your benefit period, the higher your premiums will be. 

How much does long-term disability insurance cost?

You can generally expect your annual premiums to equal 1% to 3% of your annual salary. So, for example, if you make $80,000, you’ll spend $67 to $200 per month, depending on your policy terms.

Your rates are based on:

  • Age
  • Benefit amount
  • Benefit period
  • Elimination period
  • Gender
  • Health and smoking history
  • Occupation
  • Policy riders
  • State of residence

Generally, the younger and healthier you are, the more affordable your policy.

Long-term disability can be sold with various options that increase the monthly premium and should be weighed carefully. 

Some of these options can include:

  • Excluding certain diseases and pre-existing conditions that others don’t.
  • Only paying if you can’t work at all, not just the job you were working when you became disabled.
  • Requiring you to file for Social Security disability insurance, which can reduce the long-term disability monthly payment. This can also help you qualify for Medicare health benefits that aren’t covered by insurance after two years.
  • LTD plans won’t continue to pay out your monthly payments to survivors if you pass away while receiving them, unless there is a survivor’s benefit. If the plan offers a “survivor’s benefit,” they will provide a lump sum for a certain number of months’ worth of the benefit to the eligible survivor.

The good news—long-term disability insurance will pay you directly (usually between 50% and 70%), so you can use the money as you see fit.

Not sure if long-term disability insurance is right for you? Speak with an agent today.

Everyone should consider including long-term disability in their insurance plans. It’s especially important if your family counts on your income or you’ve put a lot of time and money into a career and don’t want to risk losing that investment.

If you’re still unsure if long-term disability insurance is right for you, I’d be happy to discuss your needs and what is best for you.

Getting a policy is simple. I’ll work with you to compare quotes and help you fill out an application. Start protecting your earnings today.