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    A Simple Guide to How Long-Term Disability Works

    5 mins

    This post contains an affiliate link.

    One in four people who are 20 years old right now will become disabled before they reach retirement age, but according to the Federal Reserve Board, less than half of US adults have enough money saved to see them through three months without work.

    There’s no way to know what life may throw in your path, but there are options, like long term disability coverage, that can help you be prepared in the event of unexpected illness or injury.

    If your ability to work is permanently diminished by illness or injury, long term disability coverage can replace a portion of the income you’ve lost. In this guide, we’ll walk you through the basics of how to make long term disability insurance (LTD) work for you.

    How Does Long Term Disability Work?

    To benefit from long term disability, you must have an active insurance policy. While many employers do offer long term disability insurance, and most that do pay the premiums in full for their employees, it is not as common a benefit as short term disability. As of 2020, only around 34% of US workers have access to employer-sponsored long term disability benefits.

    If your employer doesn’t offer LTD, you can still pursue coverage for yourself by contacting a licensed insurance agent or insurance company directly. You can expect to pay between 1 and 4% of your annual income for individual coverage.

    What Qualifies for Long Term Disability Benefits?

    Insurance companies typically offer two types of LTD:

    • With an own-occupation disability policy, you will be covered for illness or injury that prevents you from completing your regular job duties. Even if you could do other work, benefits will still be provided. Own-occupation coverage will also provide benefits if you can still work but not to your full ordinary hours.

    • An any-occupation disability policy, on the other hand, will only provide benefits if you are unable to work at all, in any occupation. While these policies tend to be more inexpensive, successfully filing a claim for them is more difficult, since it’s not easy to prove that you can no longer work any job.

    What Won’t Long Term Disability Cover?

    Depending on your plan, certain injuries and illnesses may be excluded from coverage or may provide limited benefits. Consult your plan details for a full list of exclusions as each policy is different. However, there are a few exclusions that almost every plan has:

    • Intentionally self-inflicted injuries

    • Injuries sustained in the course of committing an illegal act, such as drunk driving

    • Injuries sustained at work, which would be covered by worker’s compensation

    • Temporary injuries or illnesses lasting less than 6 months are generally covered instead by short term disability

    • Pre-existing conditions may result in limited benefits

    • Mental health limits may be in place to limit the benefits you receive for diagnoses like depression or anxiety

    How Long is Long Term Disability?

    How long your long term disability lasts depends on the plan you've purchased. You'll select the duration at enrollment, usually in increments of five years. Plans may last as little as one year, or carry you to retirement age. The average long term disability claim in the US is about three years.

    Another thing to consider is that you won't receive your benefits right away. Long term disability comes with an elimination period. This is a span of time where you are disabled but do not receive benefits. It does not factor into your final benefit limit, but is still a long wait. Thankfully, the elimination period for long term disability is usually about the length of a short term disability benefit – commonly for periods of 3, 6, or 12 months.

    How Much Does Long Term Disability Pay?

    You can expect LTD to cover up to 60% of your take-home pay for the duration of your disability. Generally speaking, the more expensive the plan, the more income it will replace, but there are some other factors to consider:

    • There is probably a monthly maximum. For example, a plan may cover 60% of your base salary, but max out at paying $5,000 a month, which could potentially be less than 60% of your monthly salary.

    • The amount received may be taxable if your employer pays your LTD premium or if your premium is paid with pre-tax dollars.

    Consult your plan details to be sure!

    Is Long Term Disability Worth It?

    Now that you know how it works, you may be wondering whether a long term disability policy is right for you. If it's a benefit offered and paid for by your employer, the choice is easy, but even a more expensive individual policy can give you a valuable safety net. The benefits are usually tax-free if you pay for the policy yourself, and there are no limits on how you spend if you do receive benefits.

    Ultimately, only you can decide whether or not LTD is right for you, and that starts with shopping for plans and reviewing their policies. If you’re not sure where to start when it comes to finding good policies, Breeze offers you a convenient way to get an online disability insurance quote in seconds. You can find affordable and personalized quotes on policies by simply answering a few questions and using Breeze’s insurance cost calculator.

    With Breeze, you can fill out a simple online application that typically takes less than 10 minutes to complete. After submitting your application, you’ll find out whether you’ve been approved quickly, and if eligible, you can even be instantly approved for coverage. If you have any questions along the way or need assistance, Breeze’s disability insurance experts are available to assist you every step of the way.

    Ben Koubek
    Ben Koubek
    Enjoys exploring the realm of benefits in depth.
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