Becoming disabled can have devastating financial implications by stripping you of your ability to make a living. While some people can get by for a few months by tapping into their savings, few people can afford to stop working altogether for an extended period of time.
This is why Long Term Disability is so important.
Long Term Disability policies provide you with income for a long period of time, such as two to five years or until you retire. Most people who have Long Term Disability insurance get it through their employers, although you can buy individual Long Term Disability insurance on your own.
Long Term Disability insurance picks up where short-term disability ends. Once your Short Term Disability benefits expire, traditionally after 3 to six months, the Long Term Disability policy pays you a percentage of your salary, usually between 50 to 70%. Depending on your policy, you will then receive benefits for two years, five years, or until you turn 65 and reach retirement age.
If you pay the premiums personally with after-tax dollars, your disability benefits are tax-free. If your employer pays the premium for you your benefits will be taxable.
Most disability insurers will work with employers to help you return to work as quickly and safely as possible. While disability insurers want to see people healthy, rehabilitated and back to work, they also save significant dollars if a claimant quickly returns to work.
Look for the following when considering a policy:
Some policies pay benefits only if you are unable to perform the duties of your normal occupation, while others will pay only if cannot work in any job at all.
Some policies will allow you to decide when the payments begin. You can choose a waiting period at the time of application.
Some policies require you to be totally disabled before payments begin. Other policies pay out for partial disability for a limited time, but most often only if the partial disability follows a period of total disability for the same cause.
Residual benefits can help make up the difference in your income if you are able to work, but are limited in your duties due to your disability.
Some policies will pay benefits if you are still able to work, but still have loss of sight, speech, hearing, or use of limbs.
Generally, coverage will pay you for two years, five years, or until you turn 65. The longer you elect, the more your premium will be.
You can purchase a cost-of-living adjustment (commonly referred to as COLA) to add to your basic disability insurance policy. This provision generally increase payouts by 4 to 10% each year.
Most policies contain a "waiver of premium" provision so you do not have to pay premiums if you are disabled for 90 days or longer.