Disability insurance is something a lot of people don’t think about. Getting hurt at work—or home—is something that happens to other people, but we don’t often think it can happen to us. Since many employers offer long-term disability insurance with a paycheck deduction, workers often opt out of coverage in an effort to get every last bit of their paycheck.
Unfortunately, disability is a very real concern. One in four workers become disabled before they retire—and that leads to lost income, decreased or even eliminated earning power, and financial problems. The best life insurance companies only pay out a benefit in the event of your death. But what happens if you are still alive but badly hurt and unable to work? How will you continue to support your family? That’s where long-term disability insurance comes in.
- Long-Term Disability Insurance Explained
- Long-Term Disability Insurance Providers
- Short-Term vs. Long-Term
- Do I Need Long-Term Disability Insurance?
- What to Consider When Applying
Long-Term Disability Insurance Explained
Often used as a rider on a life insurance policy, disability insurance is sometimes called income replacement insurance, because that’s exactly what it does. During the period of your disability, you’ll receive a monthly amount, usually a percentage of your income. Depending on the quality of the policy, you could end up receiving as much as your regular take-home paycheck.
Of course, submitting a claim is not as simple as announcing to your insurance company that you are now hurt and cannot work. There are certain terms and conditions inherent in a long-term disability (LTD) policy that you need to be aware of.
The first term you should understand is the benefit period. That’s the amount of time that the policy will continue to pay you a monthly benefit during your disability. It’s important that you know exactly what your policy’s benefit period is, because while some pay out until you reach retirement age, others only pay for a few years regardless of how severe or long-lasting your disability is.
The benefit amount is another facet of your policy you should understand. It’s how much you’ll receive each month. Make sure that it’s enough to cover your living expenses—or at least cover the basics of what you’ll need.
Disability insurance also doesn’t cover everything. Each policy will have exclusions, which are basically types of disabilities or situations in which you won’t be covered. Your policy may cover any workplace accidents, for instance, but not cover anything that happens to you while you’re racing go-karts on the weekend or flying as a private pilot. Make sure you read and understand any and all exclusions on your policy.
Long-Term Disability Insurance Providers
While your employer may offer LTD insurance, there are other companies that offer independent policies as well.
Mutual of Omaha
Mutual of Omaha is one long-established company that offers LTD policies; a 30-year-old in good health can expect to pay roughly $120 to $130 per month for coverage. Like other companies, that cost will increase with your age; if you try to get a policy at age 40 or even 50, for instance, you’ll pay significantly more.
The company offers benefit periods of two years all the way to retirement age, and monthly benefit amounts total up to $12,000 per month. They also offer a variety of riders, or extra features, that are available for additional premiums.
Standard Insurance offers disability plans that not only cover your loss of income if you’re hurt or ill, but also cover you if you need to take off work to care for a family member who is sick or injured as well. Some of the additional benefits include fixed rates and terms on your policy as long as you make on-time premium payments, rehabilitation benefits to get you back to work sooner, and automatic benefit increases as your salary grows. There is even a survivor benefit; if you pass away while you’re receiving disability benefits, your spouse or beneficiary will receive up to three times your monthly benefit in a lump sum.
Ameritas is a highly rated company that has a variety of disability insurance plans available. They’ve been around since 1887 and currently enjoy A+ grades from the Better Business Bureau and other organizations. They’re known for slightly slower customer service operations, but their products are considered some of the best on the market.
They have plans that kick in as soon as 30 days after you experience a disability or as far out as two years if you have a short-term disability policy, such as through your employer. Benefit periods range from two years all the way out to age 70, and while some disability policies only cover you if you are unable to work in any occupation, Ameritas covers you if you’re unable to work in your current chosen field.
Their policies also come with extra perks such as presumptive total disability, which assumes 100% disability if you lose sight, hearing, hands, or feet. In those cases, benefits kick in immediately, with full benefits regardless of your level of employment.
Short-Term vs. Long-Term Disability Insurance
Each insurance provider has its own requirements to disability insurance, but there are two basic types of disability insurance: short-term and long-term.
- Short-Term Disability Insurance - usually meant to cover a temporary injury, sickness, or other situation resulting in loss of income for a short period of time, usually considered a few months
- Long-Term Disability Insurance - designed to cover more intense and long-lasting situations, in some cases even permanent ones
As mentioned, some companies will pay out a fraction of the benefit—or in some cases nothing at all—even if you’re unable to work at your current job, as long as you can work in another job. This is called an “Any Occupation” clause.
Other policies, however, have an “Own Occupation” clause, which means they don’t expect you to change jobs to accommodate your disability; if you cannot work in the field or occupation you’re currently in, you’ll still receive a monthly benefit—even if you can work in another field.
The terms also vary from policy to policy. Some companies offer guaranteed renewable and non-cancellable coverage; that means as long as you pay your premiums on time, the company will never alter the policy, increase your premium, or otherwise change the agreement between you and the insurer.
If you only have guaranteed renewable coverage, however, it means that insurer probably won’t change the policy, but they are legally allowed to if they get permission from the state. Conditional renewal is the least desirable of all the types; it means your policy and premium can change or increase at any time.
Do I Need Long-Term Disability Insurance?
As a rule, disability insurance is a good idea. For certain individuals, however, it’s far more useful. If you have a high-risk occupation or are relied on in your household, you should have a long-term disability policy. You should also consider it if you think your health insurance or unemployment insurance might not cover your needs in an emergency.
What to Consider When Applying
Before you choose a policy, you should look at quotes from several different companies. Compare the cost per month—you should expect to pay between 1% and 3% of your salary or more depending on the quality of coverage. You may need to have a medical exam or undergo a personal interview about your lifestyle and hobbies as well.