How does long-term disability insurance work?

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Andrew HurstSenior Editor & Licensed Auto Insurance ExpertAndrew Hurst is a senior editor and a licensed auto insurance expert at Policygenius. His work has also been featured in The New York Times, The Wall Street Journal, Forbes, USA Today, NPR, Mic, Insurance Business Magazine, ValuePenguin, and Property Casualty 360.

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Anna SwartzAnna SwartzSenior Managing EditorAnna Swartz is a senior managing editor who specializes in home, auto, renters, and disability insurance at Policygenius. Previously, she was a senior staff writer at Mic and a writer at The Dodo. Her work has also appeared in Salon, HuffPost, MSN, AOL, and Heeb.
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Maria FilindrasMaria FilindrasFinancial AdvisorMaria Filindras is a financial advisor, a licensed Life & Health insurance agent in California, and a member of the Financial Review Council at Policygenius.

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Key takeaways

  • Long-term disability insurance pays out if you’re injured or sick and need to take time off work.

  • Disability insurance covers illnesses or injuries that can keep you home from work, like broken bones, nerve damage, chronic pain, cancer, heart disease, and more.

  • Long-term disability insurance can pay out benefits for as little as a year and as long as the rest of your career, depending on your policy.

  • Long-term disability insurance usually costs around 1 to 3% of your annual income.

What is long-term disability insurance and how does it work?

Think of long-term disability insurance as insurance coverage for your future income. Hopefully you’ll never need to use it, but in case you’re hurt or sick and can’t work for a year or more, it pays out regular benefits that you can use for whatever you need.

You can even get a policy that will pay out for the rest of your working life if you’re never able to go back to your job after an illness or injury.

Long-term disability insurance usually replaces 60 to 80% of your salary, and, depending on the terms of your policy, may continue paying out benefits even if you can go back to work in a different field.

You can use your long-term disability insurance benefits just like a regular paycheck, on things like:

  • Mortgage payments

  • Car payments

  • Childcare

  • Utility bills

  • Medical bills

  • Groceries

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Where can I get disability insurance?

You can get disability insurance through your work as an employee benefit or you can buy a private policy just like with other types of insurance.

But the disability insurance you get through work is typically short-term coverage that only covers absences of up to one year, not long-term coverage, and it’s tied to your employer so you can’t keep it when you change jobs.

If you’re a high earner or you have a specialized job that requires a lot of training, it’s probably a good idea to get a private long-term disability insurance policy — the more you make or the more you’ve invested in your career, the more you stand to lose.

What does long-term disability insurance cover?

Long-term disability insurance covers most types of injuries and illnesses that would keep you from work, including:

  • An illness that causes you to lose your sight

  • Severe anxiety or depression that makes it impossible to do your job

  • Complications from pregnancy or childbirth

  • Nerve damage from a medical condition that makes it hard to use your fingers

  • Worsening heart disease that makes it impossible to stay at work all day

  • A sports injury that leads to chronic back pain

There are some exclusions to every long-term disability policy — illnesses or injuries that aren’t covered. Disability insurance doesn’t cover pre-existing conditions, meaning anything that was already diagnosed before you bought the policy. It also won’t cover self-inflicted injuries, or injuries you got while doing something illegal.

Types of long-term disability coverage

Your policy will spell out when you’re eligible for disability benefits — this is called the definition of disability. You don’t necessarily need to be totally and permanently disabled to receive benefits. Check the fine print of your policy, but we recommend “own-occupation” coverage, which offers the most protection.

  • Own-occupation policy: Pays out as long as you can’t do your original job, even if you can work in a different field, like if you can’t practice as a doctor anymore but you get a teaching job.

  • Any-occupation policy: Pays out only while you can’t work at all, and benefits end once you get another job, even if it pays less than your original role. 

  • Two-year own-occupation policy: Pays out like an own-occupation policy for the first two years, then changes and only pays benefits if you can’t work at all.

Long-term disability insurance in action

Let’s say that you fall off a ladder and break several bones in your arm and hand.

Doctors tell you that your injury will heal, but that you’ll have nerve damage in your hand that will prevent you from continuing to work as a surgeon. You have long-term, own occupation disability insurance so it will fully replace your after-tax income even if you find a different job, up to age 65.

You make a claim and wait for your long-term policy’s six-month long elimination period to end (that’s the amount of time that you have to wait before receiving benefits). While you wait, you make a claim for short-term benefits through the policy you get from your job.

After a while, you receive an offer to teach students who are preparing to become surgeons. Since you have own-occupation long-term disability insurance, you can teach and still continue receiving benefits.

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Who should get long-term disability insurance?

You may need long-term disability insurance if you have a high-paying job or a career that requires lots of schooling or training and you want to protect that investment. Careers that make for good long-term disability candidates include:

But disability insurance can be useful no matter what your job is. Losing your income and not being able to pay bills or support your family can lead to long-term financial consequences. About 67% of all U.S. bankruptcies and more than half of all foreclosures stem from illness or injury-related medical issues, according to the American Journal of Public Health. [1]

And a disability may be more likely than you think. More than 1 in 4 workers become disabled before they retire (most often from an illness, not an injury). On average, the disability lasts more than three months.

Long-term disability insurance vs. other types of disability insurance

Long-term disability insurance provides the most protection over the longest time, but there are other types of disability insurance that you might want in addition to long-term coverage.

  • Short-term disability insurance: Short-term disability insurance is similar to a long-term policy, except coverage lasts up to a year at most. You can use short-term disability insurance before your long-term policy kicks in.

  • Employee-sponsored disability insurance: You may get disability insurance through your work as an employee benefit. But it’s usually short-term coverage, and it’s tied to your continued employment.

  • Social Security Disability Insurance: You can get Social Security Disability Insurance (SSDI) through the government if you qualify. Even though it’s free, qualifying can be hard and benefits are very low compared to other types of disability insurance.

How to get long-term disability insurance 

There are seven steps to getting long-term disability coverage:

  1. Calculate how much coverage you need Before you get long-term disability insurance, you should decide how much coverage you need, how long you would want to receive payments, and what you want the waiting period to be.

  2. Consider policy add-ons Some long-term disability insurance companies offer riders, meaning extra coverage you can add to a policy, including a cost-of-living adjustment and the ability to add more coverage to your policy later on. 

  3. Shop around and compare quotes It’s smart to compare long-term disability insurance quotes from more than one company so you can get the best deal for the coverage you need.

  4. Fill out the application paperwork You will need to share your age, gender, location, and job when applying for long-term disability insurance — be sure not to misrepresent yourself on your policy.

  5. Have a phone interview with the insurance company After you fill out an application, the long-term disability insurance company will call you to ask in-depth questions about your lifestyle and medical history.

  6. Provide required information to the insurance company Companies require you to take a medical exam, verify your income, and get a rundown of your health history from your doctor — also called an attending physician’s statement (APS).

  7. Sign your policy and make the first payment After four to six weeks the insurance company will send you a policy. You can start your long-term disability insurance coverage by signing and sending back the policy and making your first payment.

How much does disability insurance cost?

Long-term disability insurance usually costs between 1% and 3% of your annual salary. 

Generally speaking, rates get higher when you increase the benefits (meaning the payments) you would get from a long-term disability insurance policy. Basically, the higher your income, the more you'll pay for long-term disability insurance to cover it.

Annual salary

Cost of long-term disability insurance

$75,000

$63 to $188 per month

$100,000

$83 to $250 per month

$125,000

$104 to $313 per month

$150,000

$125 to $375 per month

$175,000

$146 to $438 per month

$200,000

$167 to $500 per month

$225,000

$188 to $563 per month

$250,000

$208 to $625 per month

$275,000

$229 to $688 per month

$300,000

$250 to $750 per month

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Who has the best long-term disability insurance?

The best long-term disability insurance company depends on your occupation, where you live, how much and what kind of coverage you need, and other factors. 

Some companies specialize in providing long-term disability insurance to certain types of workers or to people earning some amount of money, while others are better for people with manual jobs. Here are some of our top picks for the best long-term disability insurance:

Company

BBB rating

AM Best score

What we like about it …

Ameritas

A+

A

Includes a survivor benefit for your beneficiary.

Assurity

A+

A-

Partially reimburses your COBRA medical payments if you lose your job health insurance benefits because of a disability.

Guardian

A+

AA+

Offers lifetime continuous benefits for total disabilities, even after the policy expires.

Illinois Mutual

A+

A-

Specializes in coverage for people with manual jobs.

Massachusetts Mutual

A

A++

Offers a future insurability rider that's good until your 60th birthday.

Petersen

A+

A

Covers people who would otherwise be considered high risk because of their jobs or health.

Principal

A+

A+

Offers a lump-sum payment of $62,400 in addition to regular benefits if you're presumptively disabled.

The Standard

A+

A

Includes a family care benefit if you have to take time off to care for a sick loved one.

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If you’re not sure how to pick a disability insurance policy, a licensed agent at Policygenius can help you find the best long-term disability insurance company.

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References

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Policygenius uses external sources, including government data, industry studies, and reputable news organizations to supplement proprietary marketplace data and internal expertise. Learn more about how we use and vet external sources as part of oureditorial standards.

  1. American Public Health Association

    . "

    Medical Bankruptcy: Still Common Despite the Affordable Care Act

    ." Accessed September 15, 2021.

Author

Andrew Hurst is a senior editor and a licensed auto insurance expert at Policygenius. His work has also been featured in The New York Times, The Wall Street Journal, Forbes, USA Today, NPR, Mic, Insurance Business Magazine, ValuePenguin, and Property Casualty 360.

Editor

Anna Swartz is a senior managing editor who specializes in home, auto, renters, and disability insurance at Policygenius. Previously, she was a senior staff writer at Mic and a writer at The Dodo. Her work has also appeared in Salon, HuffPost, MSN, AOL, and Heeb.

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