We typically don’t like to think that we might one day be disabled and unable to work due to an illness or injury. Statistics show, however, that disabilities occur at all ages. Per the Council for Disability Awareness, one in four 20-year-olds will be disabled prior to reaching retirement age.
It is also common to think that a long-term disability (LTD) "won't happen to me." Many believe that LTD results from a serious accident or injury, which is only true for approximately 9% of LTD claims. The most common causes for LTD Insurance claims are cancer (15%), mental health conditions (9.1%), musculoskeletal disorders (29%), pregnancy (9.4%), and injuries resulting in fractures, strains, or sprains of ligaments, and muscles (9%).
Long-Term Disability Insurance Reduces Financial Risk
The 2019 Insurance Barometer Study by LIMRA indicates that only 20% of consumers have disability insurance, even though nearly 50% said they need it. The LIMRA research also found that 75% of employees indicated they would have trouble paying for basic living expenses if they were unable to work after becoming disabled. Medical bills are also one of the leading causes of bankruptcy in the United States.
LTD insurance provides financial protection for you and your family in the event that disability renders you unable to work and draw an income. With LTD benefits, you can continue to pay your mortgage, monthly bills, and put food on the table.
What Are the Types of Long-term Disability Insurance?
There are two primary types of LTD:
- Own-occupation disability insurance
- Any-occupation disability insurance
Own-Occupation Disability Insurance
Own-occupation disability insurance also referred to as regular-occupation disability insurance, defines a disability as one where you are no longer able to work at your regular occupation. Under this type of policy, you would receive benefits if you can no longer work at your typical occupation, even if you are able to work in another occupation.
Any-Occupation Disability Insurance
Any-occupation disability insurance defines a disability as one where you are no longer able to work at any occupation. These types of policies can be less expensive than own-occupation disability insurance. However, claims for these policies are harder to prove, as it is challenging to verify that one can no longer work at any type of job.
How Can You Purchase Long-Term Disability Insurance?
Many employers offer group LTD insurance at little to no cost to employees. It is wise to sign up for such benefits within the period of time permitted, as pre-existing conditions will not impact your eligibility. In many instances, you can purchase additional levels of LTD insurance through your employer at a lower cost than if purchasing it on your own. However, you might be capped at a lower maximum benefit level than if you bought an individual LTD insurance plan.
Individual LTD plans are typically more costly than employer plans, though they generally provide a higher level of benefits and more flexibility. To qualify for an LTD insurance plan, you need to complete a medical questionnaire, at a minimum. You might be required to have a physical medical exam and lab work completed, as well. The questionnaire and exam results are provided to the insurance company for underwriting approval and to determine how much your insurance will cost.
How Much Does Long-Term Disability Insurance Cost?
As previously mentioned, some employers offer group LTD benefits at little to no cost to employees. Individual plans generally cost between 1% and 3% of your annual salary, which can be verified with check stubs or tax returns. Personal plan costs vary by the plan participant’s age, health, occupation, and other factors.
Individual LTD plan premiums can vary significantly between insurance carriers. It is best to shop around instead of going with the first or second insurance company you research. An insurance broker can also work with you to access their extensive network of LTD insurance carriers to find a plan that fits your needs and budget.
How Much Compensation Will You Be Paid?
The amount paid out to plan participants varies between LTD policies. Most plans pay between 50% and 70% of your income in benefits. As previously mentioned, if you are also receiving Social Security Disability benefits, your LTD plan might kick in as an offset to make you whole. Or your LTD insurance amount will be reduced by the amount of SSDI benefits you receive.
What Is Defined as a Disability for LTD?
Your plan documents will outline what is considered a disability for you to receive long-term disability insurance benefits. In most instances, a disability that qualifies you for LTD benefits is any illness or injury that is expected to last for a minimum of 12 months or is terminal in nature and renders you unable to work.
There is also what's referred to as "partial disability," where a disability does not render you totally disabled but does reduce your pay or responsibilities. Insurance companies use a specific formula to determine your percentage of benefits based on the severity of your disability for partial disability payments.
What Exclusions Apply for Long-Term Disability Plans?
LTD generally applies to non-work-related injuries and illnesses. Work-related injuries and illnesses are covered under Worker’s Compensation claims. Some plans also require you to apply for Social Security Disability Insurance in conjunction with LTD insurance. If approved for SSDI, then LTD insurance benefits are reduced by the amount of SSDI benefits you receive.
When you apply for LTD, you will be asked about your health. If you have any pre-existing conditions, your policy might be written to limit coverage for those conditions if they result in a disability in the future. The mental health and nervous exclusion is another common exclusion in LTD plans. This exclusion implies that If the condition that renders you disabled is a condition listed in the current Diagnostic and Statistical Manual for Mental Disorders, it will be excluded from the plan. Other exclusions to your plan might include the following:
- Alcohol and substance abuse
- Acts of war
- Intentional acts resulting in disability
- Suicide attempts
How Long Do Long-Term Disability Benefits Last?
LTD plans provide benefits that last anywhere from two years to retirement age, depending on the policy terms and conditions. If you are able to return to work, most plans are written so that your benefits stop upon initiating employment. However, some plans permit you to continue receiving benefits if you can only return to work part-time.
How Can You Initiate a Long-Term Disability Claim?
If you are out of work due to an injury or illness that renders you unable to work, review your plan policy to determine the steps you need to take to file an LTD claim with your insurance company. If your plan is through your employer, you can speak with someone in HR or your manager to determine the next steps. To initiate your claim, you will need income verification and documentation from your medical provider about your disability and inability to work.
When Are Long-Term Disability Insurance Benefits Issued?
LTD insurance benefits kick in after a waiting, or exclusion, period of three to 26 weeks. During the waiting period, short-term disability insurance can be used if you have it. Suppose you are covered under an employer group LTD plan. In that case, you will be required to exhaust your short-term disability benefits before your LTD benefits kicking in.
Unfortunately, if you do not have short-term disability insurance, you might go unpaid from the onset of your illness or injury through the waiting period or point in time when you are eligible to begin receiving LTD benefits. As a result, it can be beneficial to purchase a short-term disability plan in conjunction with an LTD plan.
How Will I Receive My Long-Term Disability Insurance Benefits?
Payment of your LTD benefits will depend on your insurance carrier. Direct deposit into a checking or savings account, funds deposited onto a debit card, and check are possible payment options. The timing of payments will vary, as well. If you receive a retroactive payment, it will likely be paid in a lump sum. Ongoing payments are typically paid on a regular schedule.
KBI Offers Long-Term Disability Insurance Support
Purchasing LTD Insurance can be overwhelming and stressful. You want to ensure you’re getting the best plan for the premiums you’re paying, while also making sure you’re covered. With the many options available to you, working with an insurance broker can help take the stress out of the process.
Brokers have access to a network of insurance providers. As a result, they can shop around to help you find the best plan and pricing. They can also support you in understanding the fine print, exclusions, and plan details.
At KBI, we appreciate the importance of taking care of yourself and your family. We’re here to support you in financially securing your future with insurance plans that cover all of the bases required for your livelihood and well-being. Let us help you find an LTD Insurance plan that you feel good about.
Contact us today by submitting our online contact form or calling us at 408.366.8880. We look forward to working with you!
By Chris Freitas