Life Insurance: Long-Term Disability Coverage Explained

Life insurance and long-term disability insurance are two separate policy types with payouts that are triggered by different circumstances. While both policies are designed to provide income protection, they are intended to cover different scenarios. Life insurance provides financial protection for your dependents if you die, whereas long-term disability insurance provides income protection for you if you become disabled and unable to work.

Life insurance and long-term disability insurance are two separate policy types

Life insurance and long-term disability insurance are two distinct types of policies that serve different purposes. While both policies are designed to provide income protection, they are triggered by different circumstances.

Long-term disability insurance protects your income while you are still alive. If you become seriously ill or disabled and are unable to work, a long-term disability policy will make benefit payments directly to you. These payments typically amount to 40% to 65% of your pre-disability earnings, and the policy remains in force as long as you are alive. The definition of "disability" may vary depending on the employer's plan, with some policies considering an individual disabled when they are unable to perform their specific job duties, while others consider the individual's ability to work in any suitable job.

On the other hand, life insurance provides financial protection for your dependents in the event of your death. It serves as an income replacement for your beneficiaries, helping them cover expenses such as medical bills, funeral costs, mortgage payments, and college tuition. The death benefit paid out by life insurance is typically tax-free, and the funds can be used at the discretion of your beneficiaries.

It is important to note that life insurance policies may include optional riders that can provide additional coverage in the event of a disability. For example, a waiver of premium rider allows you to stop making premium payments if you become totally disabled and unable to work, while an accelerated death benefit rider lets you access a portion of the death benefit if you are diagnosed with a chronic or terminal illness.

While life insurance and long-term disability insurance are separate policies, they can complement each other in providing comprehensive financial protection. It is recommended to have both types of coverage in place to ensure that you and your family are adequately protected.

Long-term disability insurance can be purchased as an individual or through an employer

Long-term disability insurance is an important form of protection for individuals who want to safeguard their income in the event of a serious injury or illness that prevents them from working for an extended period. This type of insurance can be purchased either as an individual policy or through an employer's group plan, each offering unique advantages and considerations.

When it comes to purchasing long-term disability insurance, individuals have the option to acquire it directly from insurance providers or through their employer. Employer-sponsored long-term disability insurance is typically offered as part of a benefits package, often alongside health insurance and retirement plans. This option is convenient as it eliminates the need for employees to seek coverage on their own. However, it's important to note that not all employers provide this benefit, and even when offered, the coverage may not be sufficient. Employer-sponsored policies usually replace about 60% of the employee's income, and the benefits received are generally taxable. Additionally, these plans often include an "elimination period," which is the waiting time between the injury and the start of benefit payments. This period can range from 30 days to 2 years, and employees usually have limited room to negotiate a shorter duration.

On the other hand, individuals can also purchase their own long-term disability insurance policies. These plans offer more comprehensive coverage, typically up to 90% of the individual's income, which can be crucial for maintaining financial stability during prolonged periods of disability. The benefits received from individual policies are generally not taxed since they are paid with after-tax dollars. Individual plans also offer greater flexibility and customisation, allowing policyholders to choose a shorter elimination period or an "own-occupation" policy, which pays full benefits if the individual is unable to perform their specific job, even if they can do another job. However, the cost of individual policies can be higher, typically ranging from 1% to 3% of the individual's annual salary, and the premium is influenced by factors such as occupation, age, elimination period, payout amount, and duration of the plan.

Whether opting for employer-sponsored or individual long-term disability insurance, it is essential to carefully review the terms and conditions of the policy. This includes understanding the definition of "disability" used in the plan, as some policies consider an individual disabled when they cannot perform their specific job duties, while others define it as being unable to work in any suitable occupation based on their education and experience. Additionally, it is worth noting that many policies have exclusions and limitations, and certain pre-existing conditions may not be fully covered.

Life insurance is more difficult to obtain for those with disabilities

The nature of a person's disability will affect the available policy choices. If the disability is severe or the person has other compounding health problems, most traditional life insurance providers will likely deny their application. Disabilities that affect life expectancy will impact a life insurance policy by limiting options and increasing costs.

However, having a disability does not disqualify a person from obtaining life insurance. If the disability does not impact life expectancy, traditional term policies may be available, especially if the applicant's spouse also has life insurance.

To increase their chances of receiving a more affordable rate and qualifying for the coverage they need, applicants with disabilities can work with an experienced life insurance agent. Agents can shop their application around anonymously to see which companies are most likely to offer coverage. Applicants should not try to go it alone, as denials go on record and can make it even more difficult to buy life insurance.

It is important for applicants to focus on their health. Since insurance companies favor those in good health despite a disability, it is wise to get as healthy as possible. This includes following medical treatments, eating well, exercising, regulating blood pressure, and quitting smoking.

Riders can be added to a life insurance policy to help in the event of serious illness or disability

Life insurance and long-term disability insurance are two separate policy types with payouts triggered by different circumstances. While life insurance provides a death benefit to your beneficiaries to help replace lost income upon your death, long-term disability insurance protects your income while you are still alive. If you become seriously ill or disabled and are unable to work, long-term disability insurance will make benefit payments directly to you.

However, riders can be added to a life insurance policy to help in the event of serious illness or disability. These riders are optional and can be added when purchasing a policy. Here are some common riders that can provide financial protection in the event of disability:

• Accelerated Death Benefit Rider:* This rider allows you to access all or a portion of the policy's death benefit early if you are diagnosed with a chronic or terminal illness. This can help cover various expenses or constant care needs.
• Waiver of Premium Rider:* If you become totally disabled and unable to work, this rider allows you to stop making premium payments while keeping your policy in force until you can return to work full-time. It ensures your policy remains active during your disability.
• Disability Income Rider:* This rider provides a payout if you become disabled and cannot work, but the amount is typically lower than a standalone disability policy.
• Critical Illness Rider:* Similar to the accelerated death benefit rider, this rider provides a payout from the death benefit if you become terminally ill or experience a serious medical complication.

Adding these riders to your life insurance policy can provide financial assistance during a serious illness or disability, bridging the gap between life insurance and long-term disability coverage.

Long-term disability insurance covers a range of injuries and medical conditions

Long-term disability insurance is designed to provide income protection if you become unable to work due to an accident, illness, or injury. It covers a wide range of injuries and medical conditions, including:

• Heart attack, stroke, heart disease, and other circulatory issues
• Mental health issues such as anxiety, bipolar disorder, and depression
• Musculoskeletal disorders, including chronic neck and back pain, ruptured discs, and rheumatoid arthritis
• Cancer
• Chronic Fatigue Syndrome (CFS)
• Alzheimer's disease and dementia
• Amyotrophic Lateral Sclerosis (ALS), also known as Lou Gehrig's disease
• Arthritis, back pain, and other joint disorders
• Respiratory disorders such as Chronic Obstructive Pulmonary Disease (COPD) or severe asthma
• Digestive system disorders such as Crohn's disease, inflammatory bowel disease (IBD), irritable bowel syndrome (IBS), and chronic liver disease
• Endocrine disorders, including diabetes mellitus, thyroid gland disorders, and hyperglycemia
• Neurological disorders, such as epilepsy and Parkinson's
• Hearing and vision impairments
• HIV/AIDS and other immune system disorders
• Autoimmune disorders, such as rheumatoid arthritis (RA)
• Cardiovascular disorders, including heart failure, coronary artery disease, and heart arrhythmias
• Traumatic brain injuries (TBIs)

It's important to note that the specific coverage and requirements may vary depending on the insurance provider and the individual's policy. Some policies may also have exclusions and limitations, and pre-existing conditions may not always be covered. Therefore, it is essential to carefully review the terms and conditions of your long-term disability insurance policy to understand the extent of your coverage.

Frequently asked questions