Some people never really think about long-term disability insurance. At the back of our minds, we all have that “it will never happen to me” excuse. But do you know that the moment we get sick or get injured, it’s the disability insurance that provides income replacement?
Long-term disability insurance, is this for you? We will be discussing what long-term disability insurance is and how does it work.
Long-term disability insurance: defined
Long-term disability insurance or LTD covers you in long periods of disability, in those instances wherein you are unfit or unable to work. It will serve as your income replacement, during your disability period, since you are unable to receive a paycheck. Good insurance policies out there can give you close to the amount that you take home every month when you’re working.
To know more about it, first, let’s define a few simple terms:
Elimination period– if you’re disabled, it’s the period that you will have to wait before you receive the benefits. LTD is structured wherein if you will be disabled only for a short amount of time; you’ll have to cover your expenses on your own or have short-term disability insurance to cover you.
Benefit period– is how long you will receive the monthly payments. LTF policies can widely vary. Some policies will pay you for a couple of years, while others can continue up until retirement.
Benefit amount– how much you will be paid every month. Again, this can widely vary. A rough estimate would be 60% of your pre-tax monthly pay.
Exclusion– are conditions or instances wherein disability won’t be provided due to several factors like a pre-existing condition, or a dangerous activity or hobby.
So how does LTD insurance work?
Insurance policies vary when it comes to the amount that’s being paid out to you monthly, and for how long will it last.
You can request up to 60% of your gross monthly income to the insurer. However, the catch is that it makes the policy more expensive. To get a more affordable policy, you can request for the lowest amount of protection, and use other means such as your savings and emergency funds. You can also choose to cut costs.
Another thing to note is that you have to wait for the elimination period to end, usually between one month to a year depending on the insurance policy. After, you can get the benefits that can last for several years or up until retirement.
How much will LTD insurance cost me?
There are two things that you have to keep in mind when it comes to determining the overall cost of your LTD insurance- the length of time it covers and the benefit amount. Typically, you can save at least 1-3% of your annual salary for your disability insurance.
The benefits of LTD insurance
- no restrictions on how you can use the money
- no interest, penalties, you don’t have to pay it back
- it’s tax-free
- depending on the policy, coverage can last up until retirement
- saves you from using your retirement money early
Is long-term disability insurance idea; for you? Usually, LTD insurance acts as financial support, especially when you get sick or injured, therefore, unable to work. If you want to seek out professional legal counsel on long-term disability insurance claims, click here.