Long-Term Disability Insurance

What Is Long-Term Disability Insurance?

Long-term disability insurance pays benefits to cover income lost due to a serious disability. If you become permanently sick or injured and can no longer work, long-term disability insurance will replace a portion of the income you would be earning if you were still working.

Long-term is one of two types of disability insurance. The other type is short-term disability insurance, which covers income lost due to a temporary disability, such as recovering from surgery or pregnancy.

Qualifying for a Long-Term Disability Policy

To qualify for long-term disability benefits, you must be unable to work for several months, years or permanently due to a total disability. However, different insurers and disability policies define total disability in different ways.

Typically, there are two terms insurers use to describe long-term disability insurance policies: “own-occupation” and “any-occupation.”

With an own-occupation policy, you’re considered to have a total disability if you aren’t able to work in your specific occupation or field of expertise. You may be capable of working in another occupation but can still receive benefits. This type of policy is commonly purchased by specialists like surgeons and dentists.

An any-occupation policy provides benefits only if the insured person cannot work in any occupation for which they have the appropriate education and experience. However, if the person could be retrained to work in another profession, an any-occupation policy might not approve them to receive benefits.

Costs

On average, long-term disability insurance premiums cost between 1% and 3% of your annual salary. Several factors can affect the cost of disability insurance, including the length of the benefit period, the elimination period and the percentage of income covered.

Providers calculate disability insurance premiums based on the personal characteristics of the policy holder. Age, gender, health status and occupation all contribute to making disability coverage more or less costly. Generally, the younger and healthier you are, the cheaper your premiums will be.

Long-term disability insurance is the best way to protect your income in the event that an illness or disability cuts short your career.

Daniel J. Adams, MBA, CFP®, CLU®Founder and President of CEG Life Insurance Services

As the founder of CEG Life Insurance Services, Daniel J. Adams has extensive experience with life and health insurance products. Daniel assists clients in building a secure financial future as a Certified Financial Planner™ professional and independent insurance agent. He also trains new agents and advises other financial professionals.

How Long-Term Disability Insurance Works

Long-term disability insurance works by paying out a monthly benefit based on a percentage of the income you earned while you were working. After you become disabled, you’ll have to file a claim and wait a certain period of time before you can begin receiving the benefits of your disability insurance policy.

This period is called the elimination period. The length of the elimination period depends on the type of policy you have, and you can choose how long you want the elimination period to be when you purchase your policy. Most long-term disability policies have an elimination period of 90 days, but you could choose to shorten the elimination period to 60 or even 30 days at the cost of a higher premium.

Once the elimination period is over, you can begin receiving benefits. A long-term disability policy pays benefits for at least two years. Some policies will continue paying benefits until you reach retirement age, depending on the circumstances of your disability.

You may even be able to purchase a policy that pays out benefits for the rest of your life. The average long-term disability claim pays benefits for two and a half years.

The benefits of a long-term disability policy will replace a percentage of the income you earned before your disability. Long-term policies typically cover a smaller portion of lost income than a short-term policy because long-term policies last much longer. A typical long-term disability insurance policy will cover about 60% of your income.

Total and Partial Long-Term Disability Insurance

You might see the terms total disability or partial disability when shopping for long-term disability insurance. A policy might say it only covers total disability, or that it provides coverage for total and partial disability.

“Total disability means that you are unable to work at all due to your medical condition,” said Linda Chavez, founder and CEO of Seniors Life Insurance Finder. As previously mentioned, how total disability is defined will depend on your insurer and whether you have an own-occupation or any-occupation policy.

On the other hand, “partial disability means that due to an illness or injury, you are able to work but not at the same capacity as before,” Chavez told Annuity.org. “You may have restrictions on what type of job and/or hours you can work or require specialized equipment in order to work.”

Some insurance companies might offer partial benefits if your disability prevents you from doing some of your profession’s duties but not all. Conditions that can result in partial disability include neck and back problems, fibromyalgia, depression and gastrointestinal problems.

How To File a Long-Term Disability Claim

Filing a long-term disability claim can take between 30 and 60 days, according to insurance expert and CEO of Diabetes Life Solutions Matt Schmidt. “Due to how long this process takes, you’ll definitely wish to start the filing process as soon as you can,” Schmidt said.

Schmidt explained that the first step to filing a claim is to contact your insurer and complete whatever paperwork is required. “Some insurance companies may allow you to do this on a secure online portal, or possibly over the phone,” Schmidt said.

Next, you’ll want to work with your doctor to put together the materials needed to prove your disability. This could include medical records, relevant test results or a letter from your doctor. You’ll send the necessary medical information to your case manager at the insurance company.

While the medical records are being processed, Schmidt said, “your insurance company will also probably reach out to your employer for what’s known as an ’employer statement.’” This statement will confirm your pay information and job duties and give the insurance company an explanation of how your disability prevents you from performing those duties.

“Insurance companies may have a few additional questions that will be communicated via email or through your agent,” said Schmidt, adding that it’s typical for an insurer to request additional information during the claims process. “Your insurance agent should also be providing you updates every step of the way, so you know exactly where your claim stands.”

Returning To Work After a Long-Term Disability

Before returning to work after a period of receiving long-term disability benefits, you may want to check in with your doctor. A medical professional can tell you whether you’ll be fit to perform the duties of your job and can suggest modifications to help you do those tasks without risking your health. Your doctor can also get you the proper documentation to clear you for work.

You should also consider the specifics of your long-term disability policy. Your plan might prohibit you from working while receiving benefits, or it may allow you to continue getting payouts if you’re doing a job that’s not your main occupation. The policy might also limit how many hours you can work and how much you can earn while still getting benefits.

If you’re concerned about getting the full amount of benefits and protecting your rights, you might consider working with a qualified attorney. An attorney can help you fully understand the terms of your insurance plan and get the benefits you’re owed.

Many long-term disability policies have a recurrent disability clause, which is designed to help claimants who go back to work temporarily but must stop again due to a relapse of their disability.

The recurrent disability clause allows a policyholder to skip the elimination period that normally comes with long-term disability claims if they’ve become unable to work again because of the same condition as their last claim. This provision usually applies to relapses that occur within six months of returning to work.