Long-term disability (LTD) insurance is commonly offered by employers as a way to protect employees that suffer an illness or injury which impacts their ability to work. What does long term disability insurance cover? According to the Patient Advocate Foundation, LTD coverage generally provides wage replacement equaling 50 to 70 percent of the employee’s earnings before the non-work-related injury occurred. A policy’s definition of “disability” directly influences whether or not an employee qualifies for long-term disability benefits. A disability generally exists when a person is unable to perform the duties of their occupation due to an illness or accidental injury. Policies may also include certain exclusions and limitations, such as mental conditions and pre-existing conditions.
Long-term disability insurance policies may also contain a waiting period in which the employee is not entitled to benefits. The waiting period is usually 90 days but can range from three to six months on average. Many LTD policies will also only pay for a certain number of years which can range from one policy to the next.
Long-Term Disability Coverage
Long-term disability insurance offered through an employer can provide seriously ill or injured employees with a steady stream of income to help cover essential living expenses and other financial obligations. An eligible employee receives a portion of their salary, paid directly to them, each month that they are unable to work. In some cases, coverage can include financial incentives that are designed to help transition employees back to work following recovery. Long-term disability coverage is generally paid out for two years, five years or until age 65, depending on the terms selected by an employer. A long-term disability insurance policy will generally cover the following expenses:
Essential Living Expenses
Essential living expenses include mortgage payments, rent, car payments, utilities, clothing, food, and similar expenses required for normal living. This may also include expenses that an employee generally pays out for direct family members, such as child care or tuition. Employees can determine how much they would need to cover their expenses by adding up their monthly expenses and checking to see if the replacement income is suitable. If not, an employee may have the option to choose a percentage of their income up to a maximum amount allowed by the plan.
Monthly Salary Replacement
When an employee experiences an extended illness or injury, he or she may be unable to support a family and pay important bills. This burden may be put on a working spouse or in the case of a one-income household, there may be no money coming into the home at all. With a long-term disability, an employee will generally not return to work for at least six months or longer. Long-term disability insurance provides injured or ill employees with a monthly salary replacement for a specified period of time. Payments continue to be sent directly to the employee every month that he or she remains disabled or until the benefit period ends.
Types of Claims
There are two main types of long-term disability insurance policies: own-occupation disability insurance and any-occupation disability insurance. The difference between these two policies is how disability is defined.
- Own-occupation disability insurance – An own-occupation policy defines a disability as a person’s inability to continue working at their regular occupation. This means that an employee could receive benefits if they become unable to work at their current occupation, even if he or she was still able to work a different job.
- Any-occupation disability insurance – An any-occupation policy defines a disability as a person’s inability to work at any occupation. Although an any-occupation policy is usually more affordable, it can be much harder for an employee to prove that he or she is unable to perform any job at all.
Difference Between Short-Term and Long-Term Disability
Short-term and long-term disability can provide employees with the financial security they need should they become sick or injured and unable to work. However, these two policies have some distinct differences that employers should familiarize themselves with to ensure that they choose the right policies for their business. The main difference between short-term and long-term disability insurance is the coverage period. Short-term disability insurance typically only covers the first three to six months that an employee is unable to work following an illness or accident. In comparison, long-term disability insurance can pay out for two, five, 10 years, or even until retirement in some cases. However, the average disability claim lasts for just under three years, according to the Council for Disability Awareness.
There is also a noticeable payout difference between short-term and long-term disability insurance. Short-term disability insurance generally pays out a larger percentage of an employee’s income – sometimes up to 70 percent. A long-term policy will usually pay out less – sometimes as low as 40 percent of the employee’s pre-disability income. The elimination period also differs between short-term and long-term disability insurance. The elimination period, also known as the waiting period, lasts just a couple of weeks in cases of short-term disability. This means that the injured or ill employee will start receiving payments soon after leaving work. However, the length of the elimination period for long-term disability policies can range between three and six months on average. During this time, an employee will need to figure out a different way to cover bills and other expenses.
Reach Out to a Professional Business Insurance Agency
The proper management of short-term and long-term employee disability benefits is a critical component of an overall employee benefits strategy. Although employers are not legally required to purchase any type of disability insurance for their workers, adding short-term and long-term disability policies to an employee benefits package can be a smart way to attract new talent to a business and provide reassurance to existing employees. Businesses in all industries can benefit from disability insurance, especially businesses in high-risk occupations. Most disability policies cover a wide range of common illnesses and injuries, such as neck and back pain, foot and hand disorders, muscle disorders, and certain types of aggressive cancers. For more information about long-term disability insurance or for assistance choosing a policy for a business, contact the Business Benefits Group.