Long-term disability insurance

Long-term disability insurance replaces 50-60% of your income if an illness or injury keeps you from working for three months or more.

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Amanda Shih

Amanda Shih

Licensed Insurance Expert

Amanda Shih is an insurance editor and licensed Life, Health, and Disability agent at Policygenius in New York City. Her work has appeared in Slate, Lifehacker, Jetty, and J.D. Power.

Updated September 3, 2021|3 min read

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A quarter of young workers will become disabled before they retire, leaving them without income for an unknown amount of time. [1] Long-term disability insurance fills in the gaps if you’re too ill or injured to work. 

A policy can replace up to 60% of your salary for several years, and offers more comprehensive coverage than alternative disability insurance options. 

Key Takeaways

  • Long-term disability replaces your income if you become disabled and can’t work for an extended period

  • Benefits begin after 60, 90, 180, 365, or 720 days and payments last for two, five, or 10 years, or until retirement

  • Coverage costs between 1-3% of your annual salary and rates depend on your personal profile, policy terms, and job

  • You should get long-term disability if you took on debt to get an education or if your family relies on your income

What is long-term disability insurance?

Long-term disability (LTD) replaces your income during lengthy periods of illness or injury when you're unable to work. LTD covers disability that lasts for three months or more and provides monthly payments equal to a percentage of your salary.

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How does long-term disability insurance work?

You pay premiums for long-term disability coverage and file a claim if you become disabled. When you qualify for benefits, you’ll receive regular payments. The amount that's paid out, when payments start, and how long they last depends on your individual policy.

What does long-term disability insurance cover?

Your LTD policy will include a definition of disability that details what types of illness or injury qualify you to receive benefits. Common reasons to file a LTD claim include:

  • Cancer

  • Mental health treatment

  • Pregnancy 

  • Physical injuries, such as bone fractures

When you buy your policy you’ll be able to choose whether you get benefits if you can’t do a job in your current field (known as own occupation) or if you can’t do a job in any field (called any occupation). You can also choose between coverage that pays out if you can’t do just some of the duties of your job, instead of all of the duties of your job. The easier it is to qualify for benefits, the more expensive the policy is.

When do long-term disability payments start?

Every disability insurance policy has an elimination period, which dictates how long you need to be disabled before your benefits start to pay out. 

Long-term disability policies usually have an elimination period of 60, 90, 180, 365, or 720 days. The shorter the elimination period you choose, the more expensive your policy will be.

How much does long-term disability pay out?

You can receive up to 60% of your gross monthly income while you're disabled. The benefit period, or how long you receive payments, can last for two, five, or 10 years, or until retirement. Like other policy features, the higher your benefit payments and the longer your benefit period, the higher your premiums will be. 

→ Learn more about how disability insurance works

How much does long-term disability insurance cost?

You can generally expect your annual premiums to equal 1-3% of your annual salary. If you make $80,000, you’ll spend $67-200 per month, depending on your policy terms.

Your rates are based on:

  • Age

  • Benefit amount

  • Benefit period

  • Elimination period

  • Gender

  • Health and smoking history

  • Occupation

  • Policy riders

  • State of residence

Generally, the younger and healthier you are, the more affordable your policy will be. 

→ Learn more about how much long-term disability insurance costs

Long-term disability policy riders

In addition to the basic terms of your policy and your personal profile, you can add features called riders to your disability policy. Common riders include:

  • Guaranteed renewable: Means your insurer can’t cancel your policy as long as you pay your premiums.

  • Non-cancelable: Keeps the insurance company from changing your premiums.

  • Waiver of premium: Waives your premiums while you’re disabled.

Some riders come at an extra monthly cost, while others are automatically included in most disability policies.

Do you need long-term disability insurance?

Long-term disability is a good investment for most people because it dramatically reduces the risk of financial setbacks if you become disabled. Without a policy, that period with no income could make it hard to afford everyday necessities, support your family, or keep up with savings and retirement goals.

It’s especially worth considering a disability policy if you took out loans for your education, so you’ll never fall behind on payments. 

Pros and cons of long-term disability insurance

The pros of buying long-term disability coverage generally outweigh the cons, especially if you’re able to find an affordable policy.

Pros:

  • Benefits are tax-free if you pay for your own policy

  • You can spend the benefit however you want

  • You don’t have to pay back the benefits you get

Cons:

  • Coverage costs more the older you get or the more dangerous your occupation is

  • Policies can come with exclusions that don’t cover pre-existing conditions

  • You may pay for coverage you don’t need if you never experience a disability

Alternatives to long-term disability insurance

Alternatives to LTD can give you some of the coverage you need, but not all:

  • Employer-provided LTD: Your employer may offer group long-term disability insurance in your benefits package. These policies are affordable and easy to qualify for. But, coverage amounts are limited and you’ll lose the policy if you leave your job.

  • Short-term disability: Short-term coverage is best used to complement LTD. It can provide benefits during a long-term policy’s elimination period, but is unlikely to last the full length of your disability.

  • Social Security disability (SSDI): Many people assume SSDI will offer all of the disability coverage they need, but it’s often difficult to qualify for benefits.

  • Workers’ Compensation: Most employers are required to offer some form of Workers’ Compensation, but it only pays benefits for injuries that happen on the job.

Without any disability coverage, you’ll need to dip into your savings or rely on other people for assistance. 

How to choose a long-term disability policy

There are a few key factors to consider when you’re comparing different companies and policies:

  • Price: Every insurer has its own way of measuring risk, so you may get more competitive rates from one company than others.

  • Occupation-friendliness: Some providers offer more affordable pricing to people in certain fields, like lawyers and dentists.

  • Riders offered: Not every company sells every disability rider. Make sure your top choice also offers all of the features you want.

  • Service and ratings: Consider a company’s customer service ratings and other details like whether you can manage your policy online. 

Everyone should consider including long-term disability in their insurance plans. It’s particularly important if your family counts on your income or you’ve put a lot of time and money into a career and don't want to risk losing that investment.

Getting a policy is simple: work with an independent agent to compare quotes, fill out an application, and go through a simple medical exam to secure a policy and protect your earnings.

Frequently asked questions

What is covered under long-term disability insurance?

Long-term disability insurance covers illness or injury and related treatment that makes it impossible for you to work.

How long does long-term disability pay benefits?

You can buy a policy that pays out for two, five, or 10 years, or until your retirement.

How much does a long-term disability policy pay in benefits?

Long-term disability typically replaces 50-60% of your pre-tax income.

How much does it cost to get long-term disability insurance?

It depends on your personal profile, occupation, and policy terms. Premiums are usually 1-3% of your salary.