Published March 10, 2017|5 min read
When you think of long-term disability insurance, what do you think about?
Considering that, according to a 2016 LIMRA survey, only around a third of Americans have disability insurance coverage, the answer could very well be that you don’t think about long-term disability insurance at all. But for those who do, there may be a lot of negative thoughts swirling around your head.
There’s a lot of misinformation out there regarding long-term disability insurance. We’re here to set the record straight on five of the most common myths. And check out how we took down three other long-term disability misconceptions here.
One of the most common myths about long-term disability insurance? That it’s not needed at all. You might be thinking that you get enough protection elsewhere, but your own long-term disability insurance policy is needed for most people.
It’s different than workers comp. Some people think they can rely on workers comp to cover their expenses if they become disabled. It’s a nice safety net to have, but it’s not enough. According to the Council for Disability Awareness only around 5% of accidents or illnesses are workplace-related, which means that workers comp won’t even cover them. It’s best to build your own safety net, with a comprehensive long-term disability insurance policy that doesn’t rely on a benefit your employer might not even offer anyway.
It’s different than Social Security Disability Insurance. Another common replacement for long-term disability insurance? Social Security Disability Insurance (SSDI). SSDI is a government program that provides a monthly stipend, based on past earnings, to people under age 65 who are disabled. While this sounds exactly like something you want your disability insurance to do, it can be hard to qualify for SSDI; you typically need to be completely disabled to qualify. You can collect from both your private long-term disability policy and SSDI, and with a Social Benefits Offset Rider, you can reduce your private policy by the amount you receive from SSDI, lowering the amount you pay.
Your employer disability coverage isn’t good enough. We’ve said it before, and we’ll probably say it again: your employer-sponsored insurance coverage probably isn’t enough. You could end up taking home only 40% of your income through a group plan.
You shouldn’t bank on not getting disabled. It’s easy to think that you don’t need long-term disability insurance simply because you won’t be disabled during the course of your career. 1 in 4 people in their 20s will become disabled before they retire.
Many government employees are enrolled in retirement plans like the Federal Employees Retirement System (FERS). FERS enrollees can apply for disability retirement as long as you meet certain qualifications.If you participate in these programs, insurance carriers are limited in how much coverage they can offer. Generally, insurance companies such as Guardian consider government employees as having 40-60% of group plans, so while you can buy private supplemental long-term disability insurance in addition to having FERS benefits, you may not get as much coverage as you expected.
A big concern with insurance in general is that you’ll put all of this money into building your safety net, and when the time comes to actually use it, the insurer won’t pay out. There are a few things in particular about long-term disability insurance that make people wary.
First, it can be hard to get disability coverage for illnesses like depression and bipolar disorders. Some people use this as evidence that insurers won’t pay out, but it’s a specific case that can be combated by medical records and proper documentation of treatment.
Most of the time, claims are cut and dry: You lose your eyesight or you get cancer, can’t work, and receive disability payments. The horror stories of denied claims are complicated fringe cases, mostly revolving around mental illness.
Complications can also arise depending on the type of coverage you have. If you have an own occupation policy, you can receive disability benefits in the event that you can’t work in your own occupation. With an any occupation policy, you’ll only receive benefits if you can’t work any other job. This is obviously a lot broader, and it’s the definition that many group plans use; people who have these types of policies but don’t really understand them may accuse the insurer of not paying in certain instances, even though that’s not what is outlined in the policy itself. They can work other jobs, so they don’t qualify for a claim.
Finally, people fall prey to negative reviews they read online. Take those with a grain of salt, as they represent a small subset of long-term disability policy owners. You might see a handful of negative reviews for, say, The Standard, but the company insurers around 10 million people. Negative reviews aren’t necessarily representative of a company’s overall service standard. Sadly, people aren’t super enthusiastic when it comes to insurance, and they rarely leave glowing reviews of, "Bought a policy, it worked like it should, thanks."
That’s not to say that you won’t ever run into a particularly thorny situation, but don’t avoid long-term disability insurance because you think you won’t get what’s due. In nearly every situation, you will.
A chupacabra is a fictitious creature. More likely, it’s a mangy coyote.
When you purchase a long-term disability policy, you’ll need to choose how long your benefit period is – that is, how long you’ll be receiving the benefits. Typical long-term disability benefit periods are 2, 5, or 10 years, or until retirement.
Receiving benefits until you reach retirement age sounds great, right? You might think that’s the best option, but in many cases it just adds unnecessary expenses.
In general, the longer the benefit period, the more expensive the long-term disability policy. That, combined with the fact that most disabilities only last three years, means that a policy with a benefit period that goes to retirement can be unnecessarily expensive. A five-year policy will cover most cases, and can save you a lot of money in the long run.
You don’t want your long-term disability insurance policy to ever be canceled. Confusingly, "non-cancelable" doesn’t really have to do with that.Instead, a non-cancelable policy means that your rate is guaranteed and won’t be raised over the life of the policy.
This is a nice feature to have, and many carriers offer it standard on their policies. If your policy doesn’t have this feature, don’t panic. It may not be worth paying extra to get.
That’s because the risk of a reprice on your policy is very low. Rate changes have to be filed through the state in which it’s occurring, and there are strict regulatory processes to protect consumers against arbitrary rate hikes. Going back to The Standard again: they’ve never raised their rates on policyholders, and they’ve been around since 1906. That’s how slim the chances are of you having your rates changed mid-policy.
You may not have long-term disability insurance yet, and if you don’t, don’t let any of these misconceptions scare you away from it. Get a free quote and talk to our experts to find out exactly how long-term disability insurance can work for you.Image: PhotoJeff
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