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Long-Term Disability Insurance


What is Long-Term Disability Insurance?

Long-term disability insurance covers a portion of your income when you can't work due to an illness or injury. Policies cover a lot more than accidents. They will include situations where you might be stricken by a heart attack, cancer, or a life-changing disease such as multiple sclerosis, renal disease, diabetes, or other similar conditions.

As much as we don't like to think about it, at some point in our working careers, many of us are not going to be able to work for an extended period. You may be involved in a serious car accident, be stricken by cancer, or take a hard fall on a patch of ice and break your back.

Life-changing incidents like these are more common than you might think. For example, a Social Security Administration study indicates that one out of every four of today’s 20 year-olds will become disabled before they reach retirement age.

Also, the majority of personal bankruptcies in the United States are due to medical bills.

Life is unpredictable, and there’s simply no way to know when a disabling injury or illness will strike without warning.

In addition to dealing with your medical condition, you’re also going to have to deal with financial hardships to one degree or another. If you’re the primary breadwinner for your family, this could cause a horrible disruption that could cost everyone dearly.

As bills mount, frustration, stress, and fear will mount and make things even worse.

However, with long-term disability insurance, you can give yourself a secure financial safety net to help get you through extended periods of tough times.

The best time to buy long-term disability insurance is before you need it. That means when you’re young, have a good job, and don’t have much in the way of health issues that could raise a red flag.

It's easier to qualify when you're young, and the premiums will be cheaper starting out. Also, consider that it could be hard or even impossible to buy a policy if your health takes a dive at a later date. 

Several health plans require applicants to show "evidence of insurability," meaning you must answer a series of health-related questions before you’re approved.

If you buy a good policy, the amount should come close to your regular take-home pay.

Short-term vs. Long-term Disability Insurance

It’s essential to know about and differentiate between short- and long-term insurance. Both protect you with part of your income when you go down, but several things distinguish them from each other.

Duration. Short-term disability usually lasts 3-6 months, depending on the policy you have. Long-term disability will cover many years at a time if your disability continues or is permanent. The length of time you receive coverage is known as the benefit period. Many long-term disability policies last for 2, 5, or 10 years, or until a person retires.

Coverage. Short-term disability typically covers about 60-70% of your income. Long-term coverage may only cover as little as 40% if that’s your choice. However, most insurance agents will counsel you to buy a long-term policy that also covers 60-70% of your income.

Cost. Short-term insurance costs anywhere from 1-3% of your annual income. Long-term insurance also costs 1-3% of your yearly income but is less expensive in most cases.

Initial payout. You will typically receive your first short-term disability insurance payment about two weeks after a doctor confirms your disability. Long-term disability payouts take 3-6 months before you see any proceeds (this is known as the elimination period).

The Pros and Cons of Disability Insurance

Before you decide whether long-term disability insurance is right for you, consider some of the pros and cons:

What’s Good

And What’s Not

Possible Alternatives to a Personal Long-Term Disability Insurance Policy

In addition to short-term disability insurance, other types of coverage can help replace income as an alternative to a personal long-term disability insurance policy.

You can also approach family members for support who may be willing to step in a pay your bills for you. However, this isn’t optimal either because it does put a financial burden on other relatives who are willing to accept this responsibility.