Many people ask, “How does long-term disability insurance work?” There are as many ways to answer this question because the need for income security comes from many different angles.
Rather than explore every possibility, this page focuses on how long-term disability benefits works for growing families. They need income security for both mothers and fathers. The need is greatest while their children are young and college expenses loom on the horizon.
- Calculating benefit amounts and payment duration
- What happens at the workplace while disabled
Long-Term Disability Insurance Benefits
You define your policy’s long-term disability insurance benefits at the time of application. Every policy works differently, as each feature affects the premium rates. Since cost and a generous coverage move together, you have to pick the optimal balance when signing up for a new policy.
Request a long-term disability quote to determine which features fit your budget best. An agent may contact you to help determine your optimal configuration.
Your long-term disability benefit amount will be a function of the amount of income you want to protect, and the carrier’s limits. Most carriers will limit your amount by a percentage of monthly income (usually around 66% to 70%), combined with a hard dollar cap which may range from $5,000 to $10,000 or higher depending upon your occupation.
Offsets and buy up options may affect your monthly amounts.
Benefit offsets protect the carrier and your employer from malingering. Carriers and employers want you to have an incentive to return to work. If claims payments are too generous relative to your original income, that may prompt malingering.
Your contract may include a benefit offset or integration provision. If you have another private policy, the carrier may offset what the policy may pay so that your total compensation while not working does not exceed 70% of original gross income. The same rule may apply for the Social Security program.
Many groups provide long-term disability as an employer-funded benefit. Typically, the employer pays for a base amount of coverage. You may have a buy up option during your open enrollment where you can pay extra to increase your coverage level.
The long-term disability elimination period addresses the question, “How quickly do benefits begin?” Waiting period means the same thing. It means the time during which the carrier will not pay claims after your doctor certifies the medical reason why you are unable to work.
Most policies contain lengthy elimination periods in order to keep the premiums affordable. The most common waiting time is either 90 days or 180 days.
The relatively lengthy waiting time is the primary reason this type of coverage is not ideal for covering pregnancy and maternity leave.
Maximum Benefit Period
The long-term disability maximum benefit period again may vary by carrier and the choices you make at the time of application. Most policies have a maximum period that lasts until your projected retirement age of 65.
Over age 65
Not every policy automatically stops making claims payments when you reach your 65th birthday. Some contracts may continue making diminishing claims payments over age 65, which grow smaller each year and may sunset at age 70.
Check your policy language carefully if you plan to work and need to protect your income past age 65.
In general, and policy with a lengthier benefit period costs more. You do have options at the time of application. Rather than defaulting to the traditional length, you can choose a lower-cost option lasting for 5, 10, 15, or 20 years instead.
Long Term Disability Insurance Work Related Issues
Long-term disability insurance work related issues help explain more about how these policies operate. You earn your income in your business or at your place of employment; therefore, work-related issues come into play very often.
Long-term disability and Worker’s Compensation are two completely different programs. You should not confuse the two.
Workers compensation is a mandatory program that every employer must provide for every employee. It provides income replacement and medical payments for workers who suffer on-the-job accidents and illnesses. The length of compensation varies from state to state.
Long-term disability covers off-the-job accidents and illnesses, which are far more common. However, this private program is not mandatory. You must purchase coverage prior to becoming sick or hurt in order to qualify.
You must be working full time to qualify to purchase a policy. Long-term disability protects the income of your full-time occupation. However, after filing a claim, many policyholders wonder about what happens if you return to work before you fully recover.
If you return to work as a part-time worker, and your employer must modify your duties to accommodate your limitations the policy occupation definition drives whether this affects your claim.
An “own occupation” definition means the policy is more likely to continue making claims payments if you return to work part-time, or with modified duties with a lesser income. For example, a surgeon may not be able to cut open a patient, but could still consult with other doctors. He or she can work, but just not at his or her own occupation.
An “any occupation” definition is looser. If you can perform any work at all the claims payments stop.
Return to Work Incentives
Long-term disability return to work incentive may allow you to resume your job and earn an income provided the claims payments combined with your partial income due not exceed a predefined threshold. The threshold may be 100% of your original income or less.