What You Need To Know About Long-Term Disability Insurance
Even though it’s a terrible thing to think about, long-term disability insurance is an important coverage to own. Long-term disability insurance is just one type of coverage for income lost due to illness or injury. It differs slightly from short-term disability insurance, and workers’ compensation benefits typically carried by employers.
Short-term disability insurance is a policy that pays a portion of your salary, should you become unable to work for a short period of time due to illness or injury. (Disability insurance policies generally exclude injuries incurred on the job. Those sorts of injuries are typically covered by workers’ compensation insurance.) Short-term disability policies will typically expire after three to six months.
Long-term disability insurance picks up after short-term disability insurance benefits are exhausted. After this period, an in place long-term policy would begin paying benefits. Typical policies pay 50-60% of a policyholder’s salary. If you pay for your own policy with post-tax dollars, chances are good that your benefits will be tax-free. The opposite is true if your employer pays for your policy with pre-tax dollars: benefit payments from that type of policy will have to contend with tax deductions. Because disability insurers cease paying when claimants return to work, many insurers will work with employers to help claimants return to work as soon as is healthy and safe.
Policies also vary based on how much income you lose due to injury, or are “partially disabled.” If, for example, you have to give up a job for one that pays 20% or less because of injury, you may be entitled to receive full benefits. If your new job pays 80% or more of your former salary, it’s unlikely your insurer will consider you disabled. For new salaries in between 20 and 80 percent, most insurers pay a proportionate benefit against the amount of lost income. Most policies also begin waiving premiums after 90 days of receiving benefits.
If your employer doesn’t offer disability insurance, or if you believe their coverage inadequate, you may want to consider long-term disability insurance. Long-term disability insurance can typically be purchased from the same agents that sell life insurance, and sometimes through mortgage companies.
In determining whether or not long-term disability insurance is right for you, think about how long you would be able to live off of savings should you become ill or injured. (A good rule of thumb is to have six months’ worth of expenses in an emergency account, preferably a high yield savings account.) There is a strong case to be made for long-term disability insurance: the Census Bureau estimates that one in five people will become disabled in their life-time, and the average long-term disability absence from work lasts 2.5 years. But keep in mind, most people do not become disabled, and every dollar spent on premiums is a dollar not spent on other luxuries or saved for your future.
If you do decide that you need disability insurance coverage, make sure you have a clear understanding of whether or not taxes will be deducted, and how much money you will receive after those deductions. Determine how much income you will need to weather a long-term period of unemployment. Even though it’s an awful thing to think about, owning long-term disability insurance can be a life saver.
This post comes from Michael, chief editor of DoughRoller.net, which helps consumers find the best travel rewards credit cards available today.
Similar Posts:
- Long-Term Care Insurance Shouldn’t Be Overlooked in Retirement Planning
- Short Term Car Insurance Fills Gap in Coverage
- Long-Term Care Insurance Important for Retirement Planning
- Rising Life Expectancies Carry Insurance Implications
- Should I Get Term or Permanent Life Insurance?
