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Shopping for long-term disability insurance
- What is the application process for long-term disability insurance?
There are 3 steps in the application process, which we describe below. The insurance company will review your application and determine whether you’re a risk they’d like to insure and what the premium will be. This process is called underwriting.
- Do I have to pay more if I purchase a long-term disability policy through a broker?
There's no extra cost to you if you use a broker.Brokers are compensated by insurance companies through commissions, which have already been built into insurance prices. Also, insurance companies are required to file their product prices with state regulators, which ensures that the price for you is the same regardless of how you buy it. That means, the price to you of a long-term disability policy from Insurance Company X is the same regardless of whether you buy it directly from Insurance Company X or through an independent broker (like PolicyGenius). An independent broker will be able to give you recommendations from a number of insurance companies so that you can compare policies, features and price and make an informed decision.
- How long does it take to get a long-term disability policy?
The length of time for approval depends on the complexity of the applicant's case. If an applicant has health issues, it will probably take longer for the insurance company's underwriter to review the case. The insurance company might also request the applicant's medical records, which could take several weeks. Generally, you can expect a decision on a long-term disability application within 4-6 weeks.
- What are the important features to have on a long-term disability policy?
We've recommended below key features a good-value disability policy should have. These recommendations are based on our extensive research and lean toward more comprehensive coverage so you're covered when you need it most.
Good-value disability policies should always have:
“Own occupation” definition: How a disability is defined in relation to your occupation is one of the most important features of a disability policy. An “own occupation” policy defines a disability as the inability to work at your regular occupation, even if you still might be able to work at another occupation. For example, a surgeon with hand tremors who takes a job as a medical school lecturer would be eligible for LTD benefits under an “own occupation” policy because he can't perform the duties of his own occupation (surgery). The other option is an “any occupation” policy – to qualify as disabled under this policy, you must be unable to work at any occupation. This is a harder policy for claiming benefits, but it's also usually less expensive than an “own occupation” policy. Bottom line – if you can afford the added cost of an “own occupation” policy, that's probably what you want to get.
Non-cancelable coverage: This feature is a rate guarantee and ensures the carrier can never raise rates on the policy or cancel it (unless you stop paying premiums). This is particularly important for younger buyers who want to lock in a low rate on their policy.
Residual benefits: Under a residual benefits disability provision (either in the policy or available by rider), you'll receive partial benefits if your illness or injury has reduced your income but you're still able to work. For example, if you're only able to work part-time hours, a residual benefit will make up for the income loss.
Other features to consider:
Cost of Living Adjustment (COLA): Individual disability income policies generally offer a cost of living rider that will increase benefits for inflation during a long-term claim.
Future increase option:The future increase option guarantees your right to purchase additional coverage up to a stated age without having to undergo medical underwriting again (as long as your increased income qualifies for more coverage under the company's issue limits).This option is a good idea if you're a younger buyer and foresee salary growth in your future that you'd want to protect.
Guaranteed renewable option:This renewability feature is a notch below the non-cancelable feature we discussed above. “Guaranteed renewable” means an insurer can never change or cancel a policy as long as you keep paying the premiums. However, it does not have a rate guarantee.
Unemployment waiver of premium:With this rider, the premium on your disability policy would be waived in the event you lose your job – meaning you could keep your policy in force even if you couldn't afford to pay the premium while temporarily unemployed.
Catastrophic disability benefit: If you experience a disability that results in: 1) your inability to carry out two or more activities of daily living (e.g., bathing and dressing yourself), 2) cognitive impairment, or 3) total and permanent loss of sight in both eyes, hearing in both ears, or other specified disabilities, this additional rider may cover up to 100% of your previous income from all sources.
- How do I compare long-term disability policies from different insurance companies?
Every policy is different, which makes it very difficult to compare them side by side. The most important thing is to look for and understand important terms. Read the policy language and definitions carefully, as they vary greatly from company to company (e.g., what is the definition of “Own Occupation”; how do they value residual disability benefits?) Also, make sure you consult with an advisor you trust.
At PolicyGenius all the policies we recommend have been pre-screened and translated so our clients know what is covered and what isn’t.
- How much does long-term disability insurance cost?
You should expect to pay between 1-3% of your annual salary for long-term disability insurance. (Women can expect a slightly higher range of 2-4% because women as a group have a higher risk of disability). These percentages are a rough estimate, based on selection of certain benefits and options. The most important thing is that your advisor understands your unique situation and builds that into your disability insurance recommendation.
- I belong to a professional association that offers long-term disability insurance to members. Should I get it?
You should definitely look at long-term disability coverage through your association – which is often less expensive than buying on your own because the insurer is offering a group rate. However, you should compare the coverage offered by your association with individual policies offered by reputable disability insurance companies. Then, select the policy that offers the best coverage for your situation.
- Why is proof of income required on a long-term disability insurance application?
Just as banks require income verification for mortgages and other loans, insurers will need to verify your income for disability insurance. This is because coverage is tied to your income and the insurer is taking on the risk of paying that income should you become disabled. Usually, you'll need to submit proof of income through tax returns, W2s and/or pay stubs.
- Will I need to take a medical exam to apply for long-term disability insurance?
To apply for long-term disability insurance, you will probably have to submit some medical information. Depending on your health history, your age and the amount of insurance applied for, you may also be required to take a paramedical exam. This exam is paid for by the insurance company and scheduled at your convenience. Usually, the exam takes about 20-30 minutes and involves basic measurements (of height, weight, pulse and blood pressure) and may also require blood and urine samples for analysis.
- After I buy long-term disability insurance, will my premiums increase?
It depends on the type of policy you have. If you have a non-cancelable policy, the insurance company can't increase the premium or cancel your policy.We advise younger purchasers of disability to get a non-cancelable policy to “lock in” their rate.
If you don't have a non-cancelable policy, as you get olderyour premiums can increase. This is because risk of a disability increases with age and thus the cost to insure you increases. Also,insurance companies in some instances may increase the premiums for all their members. This is due to the change in the underlying risk of the insured group, which has resulted in higher payouts than premiums they are taking in. But raising rates requires regulatory approval (meaning the insurer can't do this arbitrarily or on a specific person). Again, a non-cancelable policy will enable you to avoid these premium hike situations.
- My long-term disability insurance application was approved. When does the policy become effective?
After you are approved by underwriting, your policy will be delivered to you by your insurance broker / agent. It goes into effect upon receipt and after you've paid the first premium payment.
- How much long-term disability insurance should I have?
Your coverage on a long-term disability policy is called the benefit amount. This is the monthly amount you receive in the event of a disability. The benefit amount is based on a percentage of your current income. Typically this will be in the 60% range of gross (pre-tax) monthly salary. But remember that if you buy your own policy (with after tax dollars), your benefits will not be taxed. So a 60% coverage benefit could be pretty close to your current monthly take-home pay. You should have a disability insurance benefit that's enough to cover your living expenses (rent/mortgage, groceries, utilities, etc.). You may be able to trim your budget during a period of disability, but be aware that you may have additional expenses while you're ill or injured that may not be covered by your health insurance (for example – travel to see medical specialists).
- When is the right time to get long-term disability insurance?
If you need it, then right now! It will never be cheaper for you than it is right now because the cost of long-term disability insurance increases with age (because the risk of disability also increases with age). If you're in good health, you should easily qualify for a policy – and can lock in better rates at this age with a non-cancelable policy. Usually, people think about disability insurance after their health takes a turn. But that's often too late.If your health declines, you may no longer be insurable at an affordable premium.
General disability insurance questions
- What is long-term disability insurance?
Long-term disability insurance is an important, and often overlooked, type of insurance. When it comes to health and insurance, most people just think about health insurance. But when there’s a serious health problem, there are more than just medical bills to worry about – especially if the health problem is serious enough to keep you from working. That’s a blind spot for a lot of people. And that’s why serious health problems are the underlying cause of most personal bankruptcies and home foreclosures in the US.
This is where long-term disability insurance can help. It replaces your income if a health problem keeps you from working for an extended period of time. It protects the assets you’d otherwise deplete to cover your living expenses. Think of it as the paycheck side of health insurance. A more accurate name for it (and what it’s called in other countries) is income protection.
- If I use PolicyGenius to apply for long-term disability insurance will my personal information be safe and confidential?
At PolicyGenius we appreciate the sensitive nature of the financial, medical and occupational information required for a disability insurance application. We comply with all privacy and consumer protection laws and employ the strictest safeguards for your information.
- I have some health issues. Will I be able to get long-term disability insurance?
Depending on the health issues, you may still be able to get long-term disability insurance. In most cases, the health issue would be excluded from coverage as a pre-existing condition. For example, if you have arthritis at the time of application, then any claim for a disability related to or caused by arthritis would be excluded from coverage. In addition to exclusion, anextra premium may be charged for adverse health history. This is why it's important to get long-term disability insurance as soon as possible, before you experience adverse health conditions.
- Wouldn’t Social Security Disability Insurance (SSDI) cover me if I am disabled?
If you have a long-term disability you can (and should) apply for SSDI benefits. But be prepared for a lengthy and difficult process. To qualify for SSDI, you have to be unable to do any occupation (not just the occupation you had before your disability that you may have specially trained or were educated for) and have been totally disabled for at least 5 months. Also, be aware that nearly 65% of initial SSDI claims applications are denied. And, if you successfully appeal the denial, it could take up to 2 years to start receiving benefits. If approved, the average monthly benefit paid by SSDI is around $1,000 a month. Consider whether you could wait that long and live on that amount if you had a long-term injury or illness that kept you out of work.
- What happens to my long-term disability policy if I’m laid off or change my job?
If you have an individual long-term disability policy, it's portable – meaning it follows you to whatever job you have. With some individual policies you can also purchase an unemployment waiver of premium that will cover your premiums for a defined period of time while you're unemployed.
If you're covered under a group long-term disability policy through your employer, this is probably not portable. That means your coverage end when your employment ends. So you would need to apply for a new individual policy if your new employer does not offer a group disability coverage.
- How difficult is it to make a long-term disability claim?
Insurance companies will require you to provide proof of your disability, typically by filling out a claims form and submitting a statement from your doctor and copies of any relevant medical tests. Depending on the insurer and the type of claim, the claims process may be quite involved. It could take anywhere from a couple weeks to a few months. For more complicated claims, there are disability attorneys and claims consultants who can advise and guide through the claims process (for a fee). At PolicyGenius, we've researched the claims practices of different insurers to recommend only those that we believe have a reputation for a fair claims process.
- What is excluded from coverage under a long-term disability policy?
Exclusions in disability policies are those situations or events under which the policy will not pay a claim. The standard exclusions apply to disabilities arising as a result of a crime, self-inflicted injuries, war or military action. Also, any pre-existing health condition (meaning, any health issue that was present at the time of application) will usually be excluded from coverage. Be sure to check any insurance proposal for these exclusions so you are fully informed as to what is not covered.
- Does my disability benefit coordinate with government benefits (such as Workers Compensation or Social Security)?
It depends on the policy. Some disability policies pay out the full benefit regardless of whether you qualify for Workers Compensation or Social Security Disability. Other policies will require you to apply for government benefits for which you might be eligible and will offset the benefit payment by the amount you receive from government aid.
- I have group disability insurance through my employer. Do I also need an individual long-term disability insurance policy?
Maybe not – you should check the amount of coverage you have and the terms of your policy. But you might still consider purchasing an individual disability insurance policy for a number of reasons:
- If you switch jobs, you probably won’t be able to take your LTD coverage with you. Depending on your age and health at that point, it couldbe difficult to obtain new LTD insurance if your new employer doesn’toffer it or you plan on being self-employed
- Your coverage through work might not be enough. If your employer pays the premium, then any benefits you receive are taxed. This could leave you with an income “gap” if you’re out of work with a long-term injury or illness. For example, your group policy might cover 60% of your income, but taxes would effectively reduce that by 20-30%. There are supplemental disability policies you can purchase to close that income gap.
- Many group policies have caps on coverage, so employees with higher salaries could be under-insured. Again, there are supplemental disability policies you can purchase to close that income gap.
- What impact does my job have on my long-term disability policy?
The nature of your work and your income are important factors in determining your policy premiums. People in manual labor will pay higher premiums per dollar of coverage than people in office-oriented work. Each insurer has an occupational manual with different categories. When you apply for a policy, you'll be assigned into an occupational category with a risk rating. If you change jobs and move into a less risky occupation, you can apply for a classification change and, possibly, a reduction in premium.
Your job might also affect the definition of disability in your policy.An “own occupation” policy defines a disability as the inability to work at your regular occupation, even if you still might be able to work at another occupation. For example, a surgeon with hand tremors who takes a job as a medical school lecturer would be eligible for LTD benefits under an “own occupation” policy because he can't perform the duties of his own occupation (surgery). The other option is an “any occupation” policy – to qualify as disabled under this policy, you must be unable to work at any occupation. This is a harder policy for claiming benefits, but it's also usually less expensive than an “own occupation” policy. We recommend "own occupation" policies for most people, particularly those in specialized occupations.
- Do I really need long-term disability insurance?
If you need your income to pay for housing, food and other expenses, and have no other means to support yourself if an illness or injury kept you out of work (and without a paycheck) for over 90 days, then you are a good candidate for long-term disability insurance. Long-term disability insurance is like the paycheck side of health insurance; both protect you against the financial risks of poor health.Serious health problems are the underlying cause of most personal bankruptcies and home foreclosures in the US, due to:
- expensive medical bills
- lost income due to disability.
Health insurance protects against the first risk, and long-term disability insurance protects against the second risk.
Disability insurance policy terminology
- My long-term disability insurance policy mentions an “elimination period” (or “waiting period”). What does that mean?
The elimination period (also known as the waiting period) is the amount of time you have to wait from the first day you get ill or injured to when you start receiving benefits. Disability policies can carry elimination periods of 30, 60, 90, 180 or 365 days. Generally, the longer the elimination period, the lower your premiums will be. But keep in mind a few important things:
- Most policies are designed to be most cost-effective with at least a 90-day waiting period.
- Individual LTD policies usually pay at the end of each month – so if you have a 90-day elimination period, you will not receive your first claim check until the 120th day.
- You should look at your financial situation to determine how long you can be without an income to decide what elimination period is best for you.
- My long-term disability insurance policy mentions a “benefit period.” What does that mean?
It’s the length of time for which you’re eligible to receive monthly benefits while you have an illness or injury that keeps you out of work. Policies commonly pay for 2, 5 or 10 years or even to retirement age. The longer the benefit period, the higher the cost will be. A 5-year benefit period would cover the average duration of long-term disabilities across age groups. But depending on your age and health, a policy that covers you to age 65 (i.e., pays for a permanent disability) and gives you extra peace of mind might not cost that much more.
- What is a future increase option?
This is an optional rider that protects your future earnings. When you buy a disability policy, it is for a defined benefit amount that does not grow over time. The rider locks in your insurability, which means you can increase the benefit amount in line with your rising income regardless of any changes in your health status.
- What is a residual disability benefit?
A comprehensive policy will pay for total disability as well as partial disability. To achieve this, you should make sure your policy has a residual disability benefits provision (also known as partial disability), which pays you partial benefits if your illness or injury has reduced your income but you're still able to work. For example, if you're only able to work 50% part-time due to your condition, a residual benefit will make up for the income loss by paying out 50% of your regular monthly benefit.
- What is a cost of living adjustment (COLA) rider?
Some long-term disability policies allow you to buy a cost-of-living-adjustment (COLA) to add to your basic coverage. This feature increases the benefit by a certain percentage each year. For example, if you become disabled and are unable to work, the COLA will gradually raise your benefits to match expense inflation during your benefit period.
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