Long-term disability insurance is income protection for when you can’t work. Most insurance products like life insurance and auto insurance typically pay out one lump sum when a claim is filed, but long-term disability insurance is different in that it pays out over a long period of time. It could be years or even decades.
But the period of time you’ll be protected for and how long you have to wait before the benefits start coming in depend on the policy you pay for. You might get long-term disability insurance benefits for two years, or you could get them all the way up to when you retire at 65 or 67 years old (or even 70, thanks to later retirement ages). That’s up to you to decide, based on the policy you choose; the longer the payment period, the more expensive your policy is going to be.
Here’s what you need to know about the timeline for your long-term disability insurance benefits.
The elimination period
Before you know when your benefits will end, you have to know when they’ll start! And they won’t start until after the elimination period.
Also known as the waiting period, the elimination period is the time you have to wait before your long-term disability insurance benefits kick in. You need to remain disabled for the entirety of the elimination period in order to receive benefits.
This ensures that your disability really is long-term and that making a claim on your long-term disability insurance is appropriate for the situation, and that your short-term disability, which many people have automatically through their employer, doesn’t overlap with long-term disability benefits.
Most elimination periods last between 30 days and a year. Your specific elimination period will depend on what you choose when applying for long-term disability insurance.
What’s the right elimination period length for you? It depends on how much you want pay for premiums, and how long you can afford to go without getting paid.
A longer elimination period means lower premiums, and your premium rate is something you should be aware of with any type of insurance policy. If you can only afford so much for long-term disability insurance, you may need to go with a longer elimination period.
However, the longer the elimination period, the longer you’ll need to find other ways to replace your lost income. Without a paycheck or long-term disability insurance benefits, you’ll need to turn to sources like credit cards, loans and other debt, the charity of friends and family, short-term disability insurance (if you have it), and more severe budget cuts than you were planning. What compromises you’re willing to make in order to make payments in your life will contribute to your decision about the elimination period.
One way to at least somewhat circumvent this dilemma is with an emergency fund. There isn’t a set amount of emergency funds that you should have set aside — personal finance experts typically recommend anywhere from 3 months’ worth of expenses to a full year — and the size of your emergency fund can dictate how long to make your elimination period. You’ll have to rebuild your fund at some point afterward, but you won’t have to worry about things like racking up credit card bills, defaulting on payments, or paying others back. It’s the perfect use case for an emergency fund: money whose explicit purpose is covering your expenses while you don’t have income.
You should find the right balance of premium payments versus elimination period length that works for you. Most long-term disability insurance policies are the most cost-effective with a 90 day elimination period, so opting for a longer elimination period likely won’t be worth it.
Also important to note: long-term disability insurance benefits usually won’t pay out until the end of the month; depending on when you’re approved, you could be adding another 30 days or so before you actually get any benefits.
Your long-term disability insurance benefit period
So you’ve made it through the elimination period and are starting to get long-term disability insurance benefits. Great! That means that your income is protected and you’ll have money coming in so you can pay bills even when you can’t work!
But how long are those benefits going to last?
The benefit period – how long your benefits will last – is perhaps the most important decision you’ll make when applying for long-term disability insurance. After all, what’s the point in paying for it if you’re not going to be able to use it when it’s needed?
Most long-term disability insurance policies pay out for 2, 5, or 10 years, or until retirement, and a 5-year benefit period is typically enough to cover people; according to the Council for Disability Awareness, the average individual disability claim lasts for a little under 3 years.
But because 5 years will cover most people, premium rates aren’t much higher for longer benefit periods. That means that applying for a policy that will last you until retirement won’t cost much more per month, and you get the added benefit of peace of mind in the event (knock on wood) that your disability lasts longer than expected.
Having long-term disability insurance cover you until retirement age is particularly good for certain professions. Specialty professions that rely on a particular set of skills, like doctors, dentists, or nurses who need fine motor skills for procedures, benefit from until-retirement long-term disability insurance as a safeguard against future income loss if their disability prevents them from using those skills.
Additionally, professions where you’ll have accrued a lot of debt – again, like doctors with medical school debt – can benefit from from long benefit periods so you can still pay off your debt even if you can’t continue in your expected career (with the associated salary to pay off that debt).
If you can afford the modest rate increase, springing for a long-term disability insurance policy that will last until retirement is a good option.
Whatever you opt for in your specific policy, make sure you understand exactly how long your long-term disability insurance benefits will be in place. If you reduce the potential for unknowns, it’ll make a difficult time go that much smoother.