Unexpected injuries can cause financial stress. That’s where long-term disability insurance comes in.
What is covered and why you should consider it.
Serious illnesses or accidents can come out of nowhere. They can interrupt your life, and your ability to work for months—even years. The principle of long-term disability insurance is simple enough: you pay premiums and if you become disabled and are no longer able to work, you get regular payments to make up some of the lost income. As with life insurance, it’s often a smart way to protect you and your family (or financial dependents) if the worst happens.
A variety of payment options are available.
The details with long-term disability insurance matter since policies have several key options. For example, you’ll need to check how long you have to be disabled before any payout starts, and for how long the payments will continue. Some policies pay for a fixed period only (or until you reach retirement age if that comes first), while others may guarantee to payout until you reach retirement age, regardless of how long that is.
Determine payout levels that work for you.
You’ll also need to decide on a payout level. Generally, long-term disability insurance policies pay a maximum of around 50 to 70 percent of whatever your pre-tax salary is when you become disabled. When you take out the policy, you may be able to choose a lower payout level, which could reduce your premiums.
Long-term disability vs. short-term disability.
The main difference between the coverages is in the name—the length of time you will receive payouts. Long-term policies vary between 5, 10, 20 years, as well as retirement, depending on your specific policy. Short-term policies may only cover anywhere from a year to two years.
Get long-term disability coverage through your employer.
Your employer may cover you with a long-term disability insurance policy or give you access to buy one at a discount. Even if this is the case, don’t automatically rule out getting your own policy instead or in addition to your employer’s policy. The employer’s policy might not offer a payout level that meets your needs, for example. Also, payments you receive from an employer policy may be taxed differently from those you receive from a long-term disability insurance policy you buy yourself.
Want to learn more about the details of long-term disability insurance? Contact us to learn more and to walk you through your coverage options.