In the event of a long term disability, do you have adequate cover for all your financial obligations? Unfortunately, most people don’t. In such an unfortunate event, financial support is vital, and long term disability insurance does exactly that. It bridges the financial gap in the event of you becoming disabled.
Long-term disability insurance usually starts after short-term disability insurance depletes, referred to as the elimination period, at which point, your long term benefits start. This happens around ten to 53 weeks after an eligible event.
Long-Term Disability Insurance Does Not Provide Insurance for Work-Related Accidents
It is also important to note that long-term disability insurance does not provide insurance for work-related accidents or injuries that workers’ compensation insurance covers. However, you can claim from your short term disability insurance after the elimination period.
It does, however, cover an employee for a personal accident such as a car accident or a fall. Long-term disability insurance allows you to file a claim with details about your diagnosis. You also must prove that you are unable to work.
Waiting Period To Receive Benefits
After the waiting period, you begin to receive benefits. Short term disability claims naturally have shorter waiting periods. Long-term disability coverage waiting period may be substituted by additional coverage.
What Is Disability Insurance?
When you can no longer work because of an illness or injury and have disability insurance, you may have income protection paid out to you. Your disability insurance type determines the income replacement you can get.
It also determines how long your disability benefit periods last. There are three types of insurance:
- Supplementary Disability Insurance: The benefit period lasts two years or until retirement and can supplement other coverage, such as health insurance or other short term disability benefits.
- Short Term Disability Insurance: The second disability insurance only lasts three to 12 months and is tied to your employer. It is known as short-term disability insurance or group disability insurance.
- Social Security Disability Insurance: The third is the notoriously challenging type: state disability insurance. One qualifies for it, it is free and offered by the State.
What Qualifies as a Disability?
A definition of disability explains the medical conditions you must meet to qualify to begin collecting benefits. Each credible insurance policy includes one. Long-term disability insurance benefits are not contingent on total and permanent disability. If you have an impairment, which you can substantiate, limits your ability to carry out life activities, injury or serious illness, you will qualify. You can begin receiving disability insurance benefits if you are mentally or physically unable to complete your job.
The insurance company will further define your disability.
There Are Two Terms When You Get Disability Coverage:
If you cannot work at your regular job, despite being able to work at another job, you qualify for own-occupation disability. When you cannot work any job, you may qualify for what is known as any-occupation disability coverage.
Long-Term Disability Insurance Benefits
Unlike short-term disability benefits, which last up to a year, it takes about 90 days before one receives long-term disability benefits. Contrary to short-term disability benefits, long-term disability benefits can last from the elimination period until you retire.
In the same way, you use your income: to cover everyday expenses, pay regular bills, and keep up with your bigger financial plan, you can use disability insurance benefits to sustain life after disability.
Tax-Free Long Term Disability Policy
Moreover, unlike short-term disability insurance benefits, long-term disability claims are usually not taxable with a faster elimination period, and you do not have to pay them back.
Long-term disability claims are larger than disability benefits from the State. Therefore, an individual long-term policy is the best way to protect your lost income.
What Are Riders?
Long-term disability insurance features in many private long-term disability insurance policies are known as riders, which come at a cost. They include optional benefits.
Riders are like add-ons or extras that can enhance your coverage that customize a policy to fit your needs and preferences.
What Is a Residual Disability Rider?
The most common riders you can expect to come across when shopping for long-term disability insurance include the residual disability rider. It may provide benefits if you qualify as partially disabled. It protects you against partial income loss.
The residual disability rider comes into play if:
- Your disability does not affect your ability to perform the material duties of your occupation.
- You cannot work for a set time percentage.
The benefits are a percentage of your loss of earnings or what you would receive if you were unable to work.
You can increase your coverage amount at future dates you designate through the future increase rider. You can do so without going through underwriting again or an elimination period. The typical scenarios where the future increase rider comes in handy are:
- Reaching a certain age.
- It follows a major life event.
- Your annual income increases.
- You lose access to group coverage.
The future increase rider helps policyholders update their coverage accordingly because they understand that the amount you earn on the day of your policy will likely change over time.The cost-of-living adjustment (COLA) rider increases your benefit amount.
Cost-of-living adjustment (COLA) rider
The cost-of-living adjustment (COLA) rider increases your benefit amount.
The increase happens each year that you are disabled. It is done because inflation likely increases the cost of living annually. Adding a COLA rider to your policy offsets this risk.
Catastrophic disability rider
If you suffer a complete loss of one of your senses, the catastrophic disability rider can assist you. The rider helps you pay for ongoing care you may need due to a catastrophic injury or chronic illness. This can apply in the case of:
- Complete loss of speech, hearing loss in both ears, sight loss in both eyes, and loss of hand coordination or the loss of use of both hands
- The inability to coordinate both feet
- The inability to use one hand and foot at a time or simultaneously
The inability to perform at least two of the six activities of daily living without assistance is a catastrophic disability. They include bathing, dressing, eating, using the restroom, maintaining continence, and transferring.
Do You Need Long-Term Disability Insurance?
Can you go years or months without a paycheck without depleting your savings in the case of disability? If not, you need a long-term disability policy. When you lose your income, you risk your ability to pay bills or support your family. Inevitably, this can lead to long-term financial consequences, in which case, you need longer benefit periods that provide benefits to support you financially.
The assumption that disability insurance is for people who work dangerous jobs is false. You can become disabled despite the work you do. The majority of long-term disabilities are a result of an illness rather than an accident. Moreover, getting disability insurance prevents you from falling behind on those payments especially if you took out loans for your education.
Non-Work Related Disability
A report from the Council for Disability Awareness holds that the average long-term disability absence is 34.6 months. The council substantiates that accidents are not the cause of most disabilities. Therefore, not work-related injuries, but musculoskeletal injuries, pregnancies, cancer, heart disease, and other illnesses are the main culprits.
Employers May Provide Coverage
Some employers offer long-term disability policies for their employees, to protect them and ensure they can return to work in a reasonable amount of time. Long-term disability can cover you until you reach retirement age. However, this is dependent upon the plan you have.
Long-term disability insurance protects your most priceless asset: your ability to earn an income. Therefore, it should be a part of the financial safety net and match your after-tax-dollars financial needs. It is best to combine long-term disability insurance with short-term coverage from an employer-sponsored plan for complete coverage.
Some important data the Council for Disability Awareness collected hold that:
- In the US, there are at least 51 million working adults without disability insurance other than the basic coverage available through Social Security.
- In the event they do not earn an income, only 48% of American adults indicate they have enough savings to cover three months of living expenses. Almost 50% of American adults indicate they cannot pay an unexpected $400 bill without having to take out a loan. Or sell something to do so.
- Over a quarter of 20-year-olds can expect to be out of work for at least a year because of a disabling condition before they reach the normal retirement age of 65.
- Non-occupational factors in origin including illness, injury, or pregnancy on average every year affect 5.6% of working Americans. The duration of experiencing a short-term disability is of six months or less.
How to Get Disability Insurance
Getting long-term disability coverage follows six steps. The application process takes about four to six weeks to complete.
Here is how it goes:
- Step 1: Research and compare quotes from multiple insurers. Use the insurance information institute as a general guideline.
- Step 2: Fill out the relevant application paperwork.
- Step 3: Share your lifestyle and medical history in a phone interview.
- Step 4: Take the medical exam.
- Step 5: Wait for an application outcome.
- Step 6: Sign your policy and make the first payment.
How Much Does Disability Insurance Cost?
At least 1% to 3% of your annual salary can go to your long-term disability insurance policy. Your job type affects costs. Some disability insurance companies may offer better rates than others.
As you age, disabilities become more likely, and rates increase as you get older. It is thus best to get a policy while in your youth.
Coverage Terms and Responsibilities
One of the more vital parts of a benefits package is disability insurance. Some companies opt only to provide short-term disability. Some do not (or cannot afford to) offer one. Long-term disability is not a requirement in any state.
A third-party administrator—like an insurance agency—may be chosen by an employer to offer long-term disability programs. Employers choose how much coverage to elect for their employees. The benefits duration varies—some plans pay three to ten years’ worth of disability. Moreover, it may depend on employer choices. Others may pay until (retirement) age 65 based on a rate schedule.
Employees usually need to work for the employer for a determined duration before coverage kicks in.
Some of the Prerequisites Include:
- An employee should usually be 30 hours or more a week on a full-time basis
- Lastly, employees need to elect their benefits and contribute to the plan
- Long-term disability benefits are not restricted to monetary assistance. Larger companies can afford different options. Some companies provide occupational retraining. The aim is to assist those who are incapable of performing their job. Others are more restrictive. They may have clauses that prevent disability insurance for pre-existing conditions.
Long-Term Disability Exemptions
A long-term disability company may deny you based on your health. It can also include policy exclusions. These exclusions would mean you are not covered for ailments and injuries.
Policy exclusions can include:
- Uncontrolled diabetes
- Back pain
- Mental illness
- Alcohol or drug-related issues
Long-term disability policies deny pregnant women coverage. Long-term policies consider pregnancy a pre-existing condition. You may still be able to get a policy, but it will not cover your pregnancy.
If you are employed, your employer may be able to help you with disability coverage. Insurance for maternity leave is a short-term disability that employers may offer. However, it is not available in the individual market.
Disability Insurance for Self-Employed People
If you are self-employed, it remains vital to have disability insurance.
Self-employed people may miss mortgage payments and may not be able to work without a safety net. This can leave you in debt and force you to miss mortgage payments. You may need to get additional protection if you have employees and in the event the business could not function without you.
However, it is vital to remember that if you are a self-employed person, getting disability insurance is often more complicated than for others. There is oftentimes a prerequisite from insurers for self-employed people to have owned their businesses for a while. Rent and business expenses may also be things you need help with.
Those issues make disability insurance more complicated and expensive than for a person who needs coverage only for themselves.
You’ve Paid Your Premiums. We’ll Help You Get the Coverage You Need.
If an illness or injury prevents them from working for an extended period, our clients purchase short or long-term disability benefits or pay for them through their labor. We usually provide these benefits as part of our client’s employment. However, sometimes they have to buy them separately.
There can be a lot of complications involved when dealing with long-term disability benefits. It can be challenging to understand the policies governing this type of insurance coverage. In many cases, there are changes in the definition of disability, limitations, exclusions, and traps for the unwary.
The key to success in these cases is experience and results. Get advice from someone who has seen it all. The ERISA or state-law-governed cases require an attorney with knowledge of both medicine and law. To win these cases, you need someone who knows how to gather evidence, talk to the insurance company, and litigate if needed.
Expert Advice and Services from Aaron Engle Law
Our team ensures that our clients get the long-term disability benefits they rightfully deserve. We will develop your case and ensure you have the legal support you need to defend your case. Contact us at Aaron Engle Law (AEL) for expert advice and services.