Your most valuable asset isn’t your house, car or retirement account.  It’s the ability to make a living. Long-term disability insurance (LTD) provides financial protection by replacing a portion of your income—typically 50% to 70%—if you become unable to work due to a prolonged illness, injury, or accident.  This benefit is paid directly to you and you determine how best to use this income replacement. It serves as a critical safety net for sustaining essential expenses like housing, medical bills, and daily living costs during extended recovery periods.

Benefits consultants agree that although long-term disability coverage lacks the novelty appeal of some other benefits that companies are offering these days (Hello, pet insurance!) but it can prove much more valuable in the long run.  After all, according to the Social Security Administration, 1 in 4 people who are 20 years old now will be disabled before they reach age 67.

How It Works

• Enrollment and Premiums: You can often obtain LTD insurance through your employer as part of a group benefits package or purchase an individual policy. You will typically pay a monthly premium to keep the coverage active. Employer-sponsored plans may be more cost-effective (think of it as buying in bulk), but individual policies offer more customization and portability.
• Elimination Period: Before benefits begin, there is a waiting period called the “elimination period.” This period can range from a few months to a year, depending on your policy. Short-term disability insurance may cover this initial period.
• Benefit Payments: Once the elimination period is over and your claim is approved, you will receive monthly benefit payments. The amount is typically a percentage of your pre-disability income, often ranging from 50% to 70%.
• Benefit Duration: The length of time you receive benefits depends on your policy’s terms. Some policies pay benefits for a specific number of years (e.g., 5, 10 years), while others continue until you reach retirement age or recover from your disability.
• Definition of Disability: LTD policies have a definition of disability that you must meet to be eligible for benefits. Many policies have an “own occupation” definition for an initial period (e.g., 24 months), meaning you are considered disabled if you cannot perform the essential duties of your regular job. After this period, the definition may switch to “any occupation,” meaning you must be unable to perform any job that you are reasonably qualified for based on your education, training, and experience.

What Does LTD Insurance Cover?

When most people think of disabilities, they imagine catastrophic workplace accidents resulting in lost limbs.  The reality is far less dramatic.  Every day people are diagnosed with common illnesses and injuries that prevent you from working, including:

• Physical Injuries: Severe back injuries, joint pain, loss of limb.
• Illnesses: Cancer, heart disease, diabetes, multiple sclerosis.
• Mental Health Conditions: Depression, anxiety, and other mental health disorders (though some policies may have limitations on benefits for these conditions).
• Neurological Disorders: A Stroke, Parkinson’s disease, ALS.

It’s important to review your specific policy to understand what conditions are covered and any exclusions that may apply.

Key Considerations When Choosing LTD Insurance:

• Benefit Amount: Determine how much of your income would need to be replaced to meet your financial obligations.
• Elimination Period: Consider how long you can go without income before benefits begin.
• Benefit Duration: Think about how long you might need income replacement if you become disabled.
• Definition of Disability: Understand the policy’s definition of disability and how it may change over time.
• Portability: If you obtain insurance through your employer, consider what happens if you change jobs. Individual policies are typically portable.

Long-term disability is only designed to replace a portion of your income – it doesn’t cover extra expenses like your medical bills or long-term care costs.  Remember: LTD isn’t there to make you rich – it’s there to pay the bills and put food on the table if something happens to you.