Long-term disability insurance offers income protection if you can't work for months, years, or even decades. If an injury or illness keeps you out of work, long-term disability insurance can pay benefits until you recover or until you reach retirement age, depending on your policy and its benefit period.
How long-term disability benefits work
When you are applying for long-term disability insurance, there are two things you need to decide: the length of your elimination period and the length of your benefit period.
The elimination period, also known as the waiting period, is how long you have to wait after you become disabled before you start receiving benefits. Elimination periods can be as short as 30, 60, or 90 days, or as long as 6 months or a year.
The benefit period is the period during which disability benefits are paid out. You can choose a plan that pays out benefits for two years, five years, 10 years, or until retirement. By contrast, short-term disability benefits typically last less than a year.
The right length of each period depends on your own financial needs, what other insurance products you have, and what you can afford.
How to choose the right elimination period
Your disability benefits won't start until after the elimination period ends. Most elimination periods last between 30 days and a year. The right period for you depends on how much you want to spend on your policy and how long you can afford to wait for benefits to begin.
You need to remain disabled for the entirety of the elimination period in order to receive benefit payments from the insurance company.
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.
It also keeps your long-term disability benefits from overlapping with any short-term disability benefits you're getting.
Benefits of a shorter elimination period
The main reason to choose a shorter elimination period is if you know you won't be able to keep up with your expenses during a longer elimination period. The catch is that you'll pay more to have the shorter elimination period in your policy.
Benefits of a longer elimination period
A longer elimination period means lower premiums. If you can only afford so much for long-term disability insurance, you may need to pick a longer elimination period.
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.
Many people are able to get some financial support during the elimination period with a short-term disability policy, which has shorter elimination periods and pays benefits for a much shorter amount of time.
How to choose the right benefit period
The length of your policy’s benefit period determines how long your disability benefits will last.
Once you've made it through the elimination period and start receiving long-term disability insurance benefits, your income is protected and you'll have money coming in so you can pay bills even when you can't work.
Most long-term disability insurance policies pay out for two, five, or 10 years, or until retirement. A five-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 three years.
Since five years will cover most people, the cost of long-term disability insurance isn'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 if your disability lasts longer than expected.
When 'until retirement age' is the right benefit period
Having long-term disability insurance that lasts until retirement age is particularly beneficial for people who work in certain fields or specialty professions that rely on a particular set of skills.
For example, doctors, dentists, or nurses need fine motor skills for procedures. They can protect their future income if a disability prevents them from using those skills by getting long-term disability insurance that lasts until they retire.
Additionally, if you have accrued a lot of debt, you can benefit from long benefit periods so you can still make payments even if you can't continue to work in your expected career.
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. A licensed agent at Policygenius can help you compare quotes and find a policy that lasts the right amount of time for your needs.