Long Term Care Planning

What Is Long-Term Disability Insurance & How It Works? 2023

What Is Long-Term Disability Insurance & How It Works? 2023

In this article

— Last Updated May 27, 2022

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8 mins
Reviewed by
Eric Berkman

Guide What Is Long-Term Disability Insurance & How It Works? 2023

— Last Updated May 27, 2022

Stephanie Wilson

Director of Operations


Reviewed by

Eric Berkman

There’s nothing more fulfilling than living a long and happy life with an enjoyable career. However, not everyone is lucky enough to peacefully reach retirement age after many years of working.

There are numerous reasons that bring people to such life situations, many suffer from a severe illness that prevents them from participating in any profession-related activities and tasks. When that happens, it’s critical to have insurance that’ll cover the significant income losses and living expenses that short-term disability insurance will not be sufficient for.

Fortunately, that is what long-term disability insurance is for. In this article, you can find out everything about long-term disability insurance and why it’s crucial to invest in it for a brighter and securer future.

What is long-term disability insurance?

First things first, let’s say something more about what long-term disability insurance is. As its name suggests, it’s a type of insurance designed to protect individuals from potential income losses that might result from a severe health condition or injury.

If an illness keeps you out of work for three months or more, you’re eligible to collect your long-term disability insurance benefits. Of course, that also includes permanent disabilities that prevent you from returning to work for good.

This type of insurance policy is a wise investment for a secure financial future. If something does happen, insured people have this policy to rely on.

How does long-term disability insurance work?

Overall, long-term disability insurance works just like any other type of insurance. First, the person seeking disability insurance decides on policy premiums and benefits. Then, the policyholder makes regular payments, typically every month. Regular payments allow policy holders to take advantage of the long-term disability insurance benefits if needed.

Every long-term disability insurance policy includes the following elements:

  • The premium amount– the monthly or annual cost of the coverage;
  • The benefit amount– the amount paid in case of a long-term disability;
  • The benefit period– the entire period of time receiving the insurance benefits;
  • The elimination period– time spent with a disability until benefits kick in;
  • The definition of disability– health conditions that are considered as disabilities.

What does long-term disability insurance cover?

All kinds of health conditions and complications can prevent people from working. That doesn’t mean long-term disability insurance covers all such situations. That’s why it’s essential to carefully examine how the policy defines disability and research which conditions it covers.

Each insurance company will define disability in their own way and what is covered by individual policies will be different. That can determine whether policy holders can collect benefits or not.

For instance, some policies will define disability as an inability to perform current professional duties, allowing people to find work elsewhere. Other policies won’t pay the benefits if an individual can work in a different profession.

Overall, there are four scenarios that health insurance companies typically use to define disability. They include the following:

  • A person can’t participate in any occupation or work.
  • A person must work fewer hours because of the disability.
  • A person can’t perform specific tasks and activities.
  • A person can’t work in their primary occupation.

Although each insurance company defines disability differently, some conditions are always included. The top five reasons for filing long-term disability claims include:

  • Cancer
  • Pregnancy
  • Musculoskeletal disorders
  • Mental health conditions such as anxiety and depression
  • Sprains, fractures, muscle or ligament strains, and similar injuries

What are long-term disability insurance riders?

In addition to basic coverage for long-term disabilities, many insurance policies come with optional benefits called riders. Those riders act as extra benefits that can enhance the health care coverage received.

People can choose from many available riders to customize insurance plans to fit their preferences and needs. While some riders are free add-ons on the basic long-term disability plans, others increase the cost of coverage.

The most popular riders for long-term disability insurance policies are:

  • The residual disability rider – If you’re partially disabled, this rider protects you from partial income loss. Being partially disabled includes performing some but not all duties and the need for fewer working hours.
  • The future increase rider – Some major life events allow you to increase your coverage amount. They include reaching a certain age, losing access to group coverage, and annual income increases.
  • The COLA (Cost-of-living adjustment) rider – This rider increases the coverage amount every year. The main reason for doing so is inflation, which, if not compensated for, can gradually erode your standard of living.
  • The catastrophic disability rider – If a person loses the sense of speech, hearing, sight, or the use of hands or feet, they can pay for the needed care with this rider.

What doesn’t long-term disability insurance cover?

Although long-term disability insurance covers various conditions, it simply can’t cover everything. Therefore, this insurance comes with its limitations, too. Like defining what disabilities they cover, insurance companies can determine what they don’t cover.

Some standard exclusions for receiving long-term disability insurance include disabilities resulting from:

  • Acts of war
  • Civil disobedience and rebellion
  • Criminal acts
  • Existing medical conditions
  • Driving while intoxicated
  • Self-inflicted injuries

Simply put, insurance policies won’t cover disability conditions resulting from illegal or punishable activities, nor will they cover pre-existing medical conditions.

When does long-term disability insurance kick-in?

One of the most frequently asked questions concerning long-term disability insurance is when does long-term disability insurance benefits start.

Although long-term insurance coverage begins immediately after paying the premiums, receiving the benefits doesn’t begin immediately after an established disability.

As previously mentioned, the time between establishing the disability and the start of coverage payments is the elimination period, also known as the benefit waiting period.

People who have a disability must wait the predetermined time before their benefits kick in. Typical elimination periods include 30, 60, and 90 days. However, some policies have an elimination period of 180 or 365 days.

Since losing the primary source of income can drastically affect one’s financial situation, paying attention to the elimination period of a long-term disability policy is essential.

How much does long-term disability insurance cost?

The cost of long-term disability insurance depends on several key factors. While it’s impossible to determine a universal price that’ll fit everyone’s situation, the most common cost of long-term disability insurance varies between 1% and 4% of your current income.

Long Term Disability Insurance

Although that is just a rough estimate, the exact policy price will depend on numerous lifestyle and policy choices. Let’s check out some of the key features that might affect the cost of your plan.

Age considerably increases the costs.

Naturally, the older you are, the higher your chances of developing a disability. That’s why the cost of long-term disability insurance considerably increases with one’s age.

Because young, healthy people are less likely to develop a disability than older people, they’ll get much better deals for their long-term disability insurance plans.

Men pay less than women.

While this may show gender inequality, there’s a reason why men can receive better rates for the same insurance premiums.

Namely, women are more likely to have a disability that’ll keep them out of work. Pregnancy, breast cancer, and autoimmune disorders are only some examples.

That means women will stay away from work longer and require regular coverage payments. For that reason, men usually get better deals for the same type of coverage.

Your current health affects the cost.

Each person interested in long-term disability insurance must provide a detailed analysis of their health. That is because the price of the insurance plan will also depend on your current physical health. So, you will need to do the following:

  • Get a general paramedical exam
  • Take a blood and urine test
  • Provide your family medical history
  • Mention any pre-existing conditions
  • Provide details regarding your drinking and smoking habits

Your insurer will use the data to gain an insight into your overall health and determine the price of the insurance plan.

It matters what you do for a living.

Since disability insurance’s primary purpose is to protect you from a potential loss of income, your career choice will, without a doubt, play a vital role in the cost of your premiums. Some job positions are more dangerous than others, so people working in specific industries or professions are more likely to suffer from an injury or an illness.

That’s why insurance companies often categorize professions based on how hazardous they are. In most cases, there are five or six job categories. Your premiums will depend on the category your professional domain falls into.

Income dictates the price, too.

Closely connected to the previous point, your income influences the total coverage amount you’re expected to pay.

Once again, long-term disability insurance protects you from losing your primary income. Since income isn’t the same for everyone, not all policyholders are expected to pay the same price for the insurance.

The more you earn, the more money you’ll have to pay for the insurance. Since the amount you receive from the insurance depends on your primary income, it’s only understandable that the payment rates depend on your income, too.

Insurers require specific employment information, including standard wages, regular salaries, bonuses, and commissions. They might also take into account your contributions to a retirement plan.

Choose your riders carefully.

Although you can’t do much regarding the previously-mentioned factors, you can dictate which riders you choose to implement into your insurance plan. Each rider will equip you with additional benefits and coverage. However, each added rider will also increase the price of your premium rates.

While choosing as many riders as possible might sound tempting and more secure, you’ll want to consider each rider carefully before paying for it. Insurance riders can be expensive add-ons, so you need to determine if you genuinely need one before including it in your policy.

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Do you have to pay back long-term disability benefits?

Many people wonder whether long-term disability insurance works as a bank loan that you need to pay back.

Most long-term disability plans don’t require a policyholder to return the benefits. That’s because those benefits are the tax-free income you’ve earned by paying for regular monthly premiums over the years.

What Is Long Term Disability Insurance & How It Works? [2022 Update]

In rare cases, a policyholder might need to pay back a portion of the benefits received. That is typically when individuals simultaneously collect benefits from the government and a private insurance company. In that case, Social Security Disability Insurance (SSDI) amounts are deducted from the amount paid by your private insurance.

Since it may be years before SSDI benefits kick in, they come with a catch-up payment. However, private insurers offer you the benefits for that lost period, so you’ll probably have to pay the SSDI catch-up amount to your private insurer.

How can I apply for long-term disability insurance?

There are two options when it comes to applying for long-term disability insurance and long term care planning. Most insurers offer individual and group insurance plans.

You can purchase an individual insurance policy from insurance agents or reputable insurance companies that sell individual long-term coverage plans.

A more affordable alternative is to go with group long-term disability coverage. That means more people purchase plans from the same company, which gives them a nice discount on premium rates.

People usually get group long-term disability coverage through their employers. However, membership organizations, industry associations, and unions also offer affordable group coverage deals when applying through an employer isn’t an option.

Final thoughts

Investing in long-term disability insurance is always a good idea. Securing something you’ve worked hard on isn’t easy, but it’s possible with individual or group long-term coverage. A severe illness or injury can occur at any time, and it’s crucial to be prepared if that happens.

Since your insurance premiums depend primarily on your age and health, starting now is always better than starting later. That way, you’ll secure lower rates for the same coverage.

Think about what kind of long-term coverage and riders you need, and make sure to choose a plan that gives you the much-needed financial security.


Stephanie Wilson


March 2, 2022

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