Long-Term Disability Insurance & Legal Eligibility
To reduce the risk of lost income if they cannot work for a long period, some people may choose to purchase long-term disability insurance. Under this policy, a consumer pays premiums to an insurer in exchange for a right to receive disability benefits based on an injury or illness that keeps them out of work for a long time, or permanently. Both individual and group plans may be available. Before purchasing insurance, a consumer should review the key terms of the policy, which include:
- How much they will need to pay in premiums
- How much they will get in benefits during a period of disability
- How long their benefits will last following the onset of a disability
- How long they will need to wait after the onset of a disability to get benefits
- How the policy defines a disability
The cost of premiums may vary depending on the age, gender, health, and occupation of the policyholder, among other factors. Benefits are usually defined as a percentage of the policyholder’s income, often between 60 and 80 percent. The duration of benefits may be defined in months or years, such as five or 10 years, or a policyholder may be entitled to benefits until they reach a certain age, such as 65 or 70 years old. Before getting benefits, a policyholder likely will need to go through a waiting period, also known as an elimination period, which may be as short as 30 days or may last for several months or even a year.
How Long-Term Disability Policies Define a Disability
The two most common definitions of disability under long-term disability policies are the “any occupation” and “own occupation” definitions. When a policy uses an “any occupation” definition of disability, this generally means that a policyholder will not get benefits if they can work in any job. (This term is often interpreted to mean any job for which the policyholder is suited, considering their education, experience, and training.) Since this greatly restricts the scope of coverage, a consumer may pay relatively low premiums for this policy.
On the other hand, an “own occupation” definition generally means that a policyholder can get benefits if they cannot work in the same job that they held at the onset of their disability. They can work in another job and still receive benefits. These policies may be more expensive, or a policyholder may need to buy their way into this definition as a “rider,” or an add-on to the base coverage for an additional charge. Some hybrid policies start with the “own occupation” definition of disability and transition to the “any occupation” definition after a specified period, such as two years.
Policies typically will exclude disabilities arising from certain events, such as crimes, self-harm, or drunk driving. Some exclusions may be tailored to the circumstances of a particular individual, such as any past or pre-existing conditions.
Riders on Long-Term Disability Policies
As mentioned above, riders are add-on benefits and features that provide greater coverage to a policyholder. Not every rider will be right for everyone, and a consumer should weigh the cost of a rider against the likelihood that they will need its benefits. One type of rider that many people find attractive is a residual disability rider, which provides benefits when a policyholder loses income due to a partial disability. This may take effect if a person with a disability cannot do all of their core job duties or cannot work in their occupation for a certain percentage of the time.
Another common type of rider is the catastrophic disability rider, which covers treatment for certain serious injuries or illnesses. Often, this involves a total loss of vision, hearing, or speech, the use of both hands or both feet, or the use of one hand and one foot. Sometimes this rider also may provide coverage when a policyholder cannot perform two or more of the main activities of daily living without assistance. These are roughly defined as eating, dressing, bathing, transferring, toileting, and continence.
