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What is long-term disability insurance?

An income for when a disability means you can no longer make an income.

Long-term disability insurance is an insurance policy that provides income replacement for workers if they become unable to work due to an illness or injury so they can continue paying bills and meeting financial goals and obligations.

It’s an essential part of being fully insured, but many workers don’t have it.

Read on to learn about this important insurance type:

How long-term disability insurance works

When you buy a long-term disability insurance policy, you pay premiums (usually between 1% to 3% of your salary) in order to be covered in case you become disabled. If you become disabled and meet your policies definition of disabled (this will vary by policy), then your are eligible to receive benefits after an elimination period. Benefits are are usually about 60% of your gross income, and can last anywhere from 2 years until retirement age, depending on the terms of your policy.

How to apply for long-term disability insurance

Applying for long-term disability insurance is not dissimilar to applying for life insurance: harder than buying something on Amazon, but easier and worth in in the long-run.

1. Compare quotes. If you only get a quote from one company, you could end up overpaying by hundreds of dollars a year. Use a comparison tool to get disability insurance quotes from several insurance companies. (Psst, we know a guy — it’s us, we’re the guy. Get disability insurance quotes.)

2. Apply. Your disability insurance application will require basic info plus income documentation — either your latest tax return or employment offer letter. You’ll also sign paperwork to give the insurer access to your health records.

3. Do a phone interview. A rep from the insurer will call to ask some questions about your lifestyle (hobbies, travel) and medical history. It’ll take about 20 to 25 minutes of your time. Your insurance broker generally gives you a heads up on what questions to expect. Have the name, phone number and address of your primary physician handy, as the rep generally asks for that info.

4. Take the medical exam and undergo underwriting and approval. Your insurer or broker will arrange for a free disability insurance medical exam. A technician will come to your home or workplace and measure your height, weight, pulse, and blood pressure, take blood and urine samples, and ask you questions about your health. The results get sent to the insurance company for underwriting, which is when the insurance company looks over all your info and health history and decides how much it will cost to insure you. This process can take two to four weeks.

5. Sign and pay. Once your policy is approved and your rates set, it’ll be sent to you sign and pay the first premium to activate the policy. Once it’s activated, you can rest assured that if you become disabled and unable to work, you will still have an income.

Read more about how to get disability insurance.

How to file a claim for long-term disability insurance

We buy insurance for the worst case scenario, hoping that it never comes. But if you do need to use your long-term disability insurance coverage, here’s how to do that.

1. Review your policy. If you become injured or disabled, the first thing to do is review your policy. It will contain important information about time limits for filing your claim, document requirements that will be important to share with your doctor, and information about the waiting or elimination period, the time you must wait after filing your claim before benefits start.

2. File a claim with your insurance company. As soon as possible, file a claim with your insurance company, both to meet the time limits and to start the elimination period. Each company’s claim process will be a little bit different, but in general, to file a claim, you’ll need information about your job and pay rate and statements and documents from your physician that verify that you cannot work.

3. Wait out the elimination period. Long-term disability insurance policies do not pay out benefits until after the elimination period, which can be from 30 days up to a year based on your policy. (The longer the elimination period, the lower the premiums, so this is something to consider when choosing a policy!) You may have short-term disability insurance through work or the state (more on that below) that can make up for the gap in coverage until benefits start.

4. Receive benefits. Once your claim is approved and the elimination period is over, you will begin to receive monthly benefits. The terms of your policy will determine how long those benefits last — in some cases the benefit period is two years, in others it lasts until retirement age.

5. Return to work when and if you are able. Your benefits will end when you return back to work (though some policies include riders that that allow you to collect benefits if you return to work in a limited capacity or if you start working a different occupation).

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Types of long-term disability insurance

There are two types of long-term disability insurance policies — own occupation and any occupation. The difference is how they define disability.

  • Own-occupation disability insurance: Defines a disability as an inability to work at your regular occupation. With an own occupation policy, you could get benefits if you could no longer work at your own occupation (say, ballerina), even if you could work another job. (There are also several types of own-occupation disability insurance.)

  • Any-occupation disability insurance: Defines a disability as an inability to work at any occupation. These plans are harder to claim benefits from (you’d have to prove you cannot do any job at all, which is a hard sell), but can be cheaper.

How much long-term disability insurance costs

In general, you can expect to pay 1% to 3% of your annual salary for a long-term disability insurance policy. So if you’re on $50,000 per year, that means you will pay between $500 and $1,500 a year for your policy.

Why the variance? Like life insurance rates, disability insurance rates depend on your health, age, and other factors. Additionally, insurance companies may factor in your career field. It’s not uncommon for disability insurance quotes to be drastically different between companies, so it’s important to get several quotes.

Read more about the cost of long-term disability insurance.

How long-term disability insurance differs from other types of disability insurance

Social Security disability insurance vs. long-term disability

Social Security disability is technically an option for long-term disability benefits, but you should know that the application can take up to a year to be approved, and 61% of people are denied at the first round. Also of note: the average monthly benefit just over $1,000. If that’s not enough for you to live on (or even if it is, and you don’t like your odds of approval), you’ll need another option.

Read more about Social Security disability insurance.

Short-term disability insurance vs. long-term disability insurance

Many employers offer short-term disability insurance, which maxes out after 3 to 6 months to a year. Long-term disability insurance is for the months and years (even decades) after that benefit has already been used.

State-run disability insurance vs. long-term disability insurance

There just five states with state-funded short-term disability programs: California, Hawaii, New Jersey, New York, and Rhode Island. If you live in a state with a short-term disability insurance program, you could qualify for benefits from the state for up to 6 months or even a year in California. Long-term disability insurance is for the months, years, and decades after your state-provided benefit has been used.

Group disability insurance vs. long-term disability insurance

Some employers do offer long-term disability insurance, but the benefit may not be high enough, and the definition of disability may be more strict that in an individual plan. And then there’s the biggest issue with employer-sponsored insurance — it’s not portable, meaning if you leave your job, your insurance is gone, too.

Read more about group disability insurance.

Workers compensation vs. long-term disability insurance

Workers compensation pays lost wages and medical benefits only if your disability was caused by work. Arthritis, heart disease, stroke, cancer — these are all very common long-term disability claims, and none would result in workers compensation.

Disclaimer: Policygenius’ editorial content is not written by an insurance agent. It’s intended for informational purposes and should not be considered legal or financial advice. Consult a professional to learn what financial products are right for you.

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