Understanding Long-Term Disability Insurance

The Social Security Administration estimates that one in four adults will likely go through a long-term disability before they reach retirement age. It can be scary to think about being a part of these statistics, especially if you have people that depend on you.

That is where long-term disability (LTD) insurance comes in to safeguard you and your loved ones if your well-being is ever compromised.

What Is A Long-Term Disability Insurance Policy?

A long term disability insurance provides full or partial income coverage in case the insured is unable to work due to an illness or injury.

Unlike short-term disability insurance taht will only cover up your financial needs for up to 2 years, long-term insurance can give coverage for up to 10 years, and depending on the policy, even until retirement.

The Eligibility Criteria

Most insurance companies have only three general requirements for being able to receive your insurance funds: must have paid correctly for the policy, have a medical condition that would qualify as a disability and file the claim once you need it .

However there are a few situations that may disqualify the beneficiaries from receiving benefits after the elimination period has passed:

  • impairment incurred as a direct result of criminal activity
  • physical impairment resulting from military service
  • intentional self-infliction of illness or injury
  • any time an employee is not receiving regular medical attention from a doctor or is not actively pursuing the treatment plan prescribed by that doctor
  • time spent in jail or another detention facility

Possible Exceptions To The Eligibility

Pre-Existing Conditions

Nearly all plans exclude coverage for "pre-existing conditions," which includes anything that requires medical attention within the past 90 days.

Mental Conditions

Although illnesses like schizophrenia and organic brain disease frequently warrant extensions, the typical time limit for disability benefits due to a mental or nervous condition is 24 months. Substance abuse and alcoholism can lead to severe health problems, and those who suffer from them may receive limited or no coverage for their disability.

Waiting Period

There may also be a waiting period before you become eligible for LTD benefits, known as an "elimination period," in your LTD policy. If you're receiving short-term disability benefits, the elimination period will likely be the same length of time.

Social Security Disability

You will likely have to apply for SSDI benefits if you receive LTD. To reduce your monthly LTD payment, your insurance company will "offset" your Social Security disability payment.

Duration Of Benefits

The percentage of your pre-disability income you will receive as benefits will vary from policy to policy but is typically between 50% and 80%. While benefits under some LTD policies may continue until you reach age 65, others may do so for only a set number of years. To find out how long your policy will last, look at the SPD.

Taxability Of Benefits

Your LTD benefits will be taxed as ordinary income if you or your employer pay the premiums with after-tax funds. You won't have to pay taxes on your LTD payout if you use after-tax funds to pay the premiums. Premiums paid with after-tax dollars are not deductible, but benefits from a long-term disability policy are deductible.

Appealing Against A Denied Long-Term Disability Claim

Check the policy for the specifics on filing an internal appeal and pay attention to any applicable time limits. Before taking your insurance company to federal court, you must use all available internal appeals channels.

A federal judge hearing an ERISA case can only look at the evidence presented during the internal appeals process (the "administrative record") and cannot take into account anything new discovered after the case was filed.

If you need assistance with the administrative appeals process or want to stack the administrative record in your favor, hiring a long-term disability attorney may be worth it. Most disability lawyers will only collect payment if they successfully represent you in court.

In Conclusion

Long-term disability insurance is something to consider if you currently receive a regular income because accidents and illnesses can happen to anyone at any time.

If an injury or illness leaves you unable to work for an extended period, long-term disability insurance can help you make ends meet. You'll have a reliable source of income each month, which will make your life easier overall.

Your company might provide insurance for you, or you could purchase a policy on your own. Some long-term disability insurance providers can evaluate your long-term disability insurance requirements and help you select a plan that meets your budgetary constraints and individual needs.

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