• Income Insurance

What is Long-term Disability Insurance?

3 min

Long-term Disability Insurance 

Serious, unexpected events like injury or illness may prevent you from working for an extended period of time. And if this happens to you, you may wonder how you could possibly sustain your current standard of living without a guarantee of a steady income while you recover. At the end of the day, there are bills to pay, daily living expenses, mortgages, and/or other debts.

Fortunately, that's where long-term disability insurance comes in. It is a type of essential disability insurance that will provide you peace of mind while you're on the mend.

What is long-term disability insurance?

Long-term disability insurance provides income protection for injuries or illnesses that keep you out of work for three months or longer. This type of disability insurance also includes income protection for permanent disabilities.

It is an ideal investment for otherwise healthy individuals in the workforce who want to secure their financial future. You can buy long-term disability insurance as an individual or as part of a group, or both.

How does long-term disability insurance work?

Long-term disability insurance works in the same way as any other form of insurance does. Your monthly payments give you access to a long-term disability benefit offered by your insurance provider, which kicks in if you experience a serious injury or disease that keeps you from working for a prolonged period of time.

Important factors when considering a long-term disability insurance policy:

The benefit amount

A benefit amount is how much long-term disability you are paid per month if you become disabled. The payment amount will typically be a percentage of your salary, and its size will be determined by the policy that was purchased. Long-term disability insurance will cover 60% to 80% of your salary. Many policies also replace the income that is lost if you have to take a lower-paying job due to an injury or illness.

The elimination period

The elimination period, or the time you have to wait following an injury before receiving long-term disability coverage, has a significant effect on the cost of long-term disability insurance. The longer your elimination (or waiting) period, the less you will pay in premium. Long-term disability elimination periods can be as short as 30 days or as long as a year, but the average waiting period is 60 to 90 days.

Benefit period

How long your long-term disability will last if you become disabled depends on your policy. The payout span may be a number of months or years, or it could last until you reach a certain age. Long-term disability insurance plans typically have benefit periods of 2, 5, or 10 years or until the age of 65 or 67. You may expect to pay more in premiums if the benefit span is longer, although five years is almost always the most cost-effective benefit period length.

Definitions of disability

In the event of an accident or illness, how an insurance provider determines disability can decide how many if any, benefits you receive. But the definition of disability, or the conditions that your insurance policy would cover or not cover, is broad. Typically, the broader the definition, the more expensive the insurance plan. The two definitions you need to familiarize yourself with are mainly any-occupation or own-occupation. 'Own-occupation' means you qualify for benefits if you are unable to work in your occupation due to a disability. This definition also includes any work specializations. However, if you are still capable of working, even if it is at a lower-paying job, an any-occupation policy would not pay benefits. There are also different types of disability, like "partial disability," which would mean you could qualify for different percentages of your total benefit amount.

Premium amount

The premium amount, or monthly cost of disability insurance, is determined by the duration and type of coverage you choose, your health, the benefit amount, and other factors.

When do you start getting your long-term disability insurance benefits, and how long does it last?

You start receiving your long-term disability insurance benefits after you receive your insurance provider's approval. You can then accept the coverage offer and begin paying your premiums for long-term disability coverage to start. Long-term disability coverage lasts as long as you make timely and complete premium payments.

Keep in mind, however, that the start of coverage isn't straightforward. You need to look out for the elimination period, also known as the waiting period, to determine when long-term disability benefits kick in if you become disabled.

When applying for long-term disability coverage, your waiting period options are typically 30, 60, 90, 180, or 365 days. It's important to note that the length of your long-term disability benefits depends on your policy's benefit period. It can be a certain number of months of years or up to a certain age.

Is long-term disability insurance worth it?

This form of disability insurance is essential rather than worth it. It acts as a financial safety net because it dramatically reduces the risk of financial trouble if you are unable to work for an extended period of time because of a serious illness, injury or accident.

The best time to buy long-term disability insurance is now! Long-term disability insurance only gets more expensive with age, so it's best to secure it at a lower rate, and therefore, at a younger age. People often think, "it won't happen to me." Still, the reality is that serious accidents or injuries can happen anytime, anywhere.

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