Is long-term disability insurance necessary?


If you’re like most people, you don’t consider life insurance to be necessary: It gives you the peace of mind that, in the event of your death, your family will receive a sizeable payout to assist offset the loss of the income you would have otherwise supplied. Who would contest that?

Long-term disability insurance, often known as LTD, offers the same kind of financial security for those who are unable to support their families, but instead of making a single payment, it gives you a monthly check while you’re unable to work because of a sickness or injury.


Long-term disability insurance is necessary.

Think for a moment about your most valuable financial assets. People frequently mention things like homes, vehicles, and investments; yet, if you stop to think about it, your capacity to work and generate revenue is perhaps your most significant “asset.” Your other assets would likely be at risk if you were to lose your ability to work for an extended period of time. In fact, if you were unable to work and generate revenue, would you even be able to maintain your current standard of living? The likelihood is higher than most people think.

Although LTD is not disability insurance, it covers a percentage of lost income for a number of years if you are unable to work as a result of illness or injury. Consequently, a lot of specialists refer to it as disability income insurance. Because the benefits you receive can be used for anything you need, such as your mortgage, utilities, credit card payments, auto loans, personal loans, retirement contributions, student loans, college or childcare, groceries or dining out, even vacations and entertainment, the best LTD plans are a powerful defense against disruption to your way of life.

How LTD plans function


Short-term disability insurance, or STD, is a popular benefit that is frequently offered by employers as a required or optional benefit. Temporary disability insurance (STD) replaces up to 60% to 80% of your income for a period of three to twelve months (nearly never longer than a year), or until you can return to work.

Although LTD is for longer term and even permanent disability, it is similar in many ways. Although insurance is typically acquired as an individual policy, it is occasionally provided as a company benefit. Each policy under an LTD plan is a formal agreement with an insurance provider that specifies the following terms, all of which are intended to provide a long-term source of income, maybe through retirement.

• The benefit: The amount of money you can receive each month if you are eligible for benefits but are unable to work.

• Benefit period: The time frame during which you may receive compensation. The length of time could range from 24 months to retirement age depending on the exact LTD policy (unless you recover from your disability earlier).

• The holding time: The period of time following your declaration of disability before you are qualified to receive benefits is also known as an elimination period. Usually, it lasts between six months and a year. If you don’t have short-term disability, you’ll need to have enough savings to see you through.

• What is a disability? Every disability policy has a distinct definition of what it means to be disabled in order to be eligible for benefits. One of two types will apply to the definition of disability in an LTD policy:

 If you can’t work in your profession or speciality, you can still qualify under the own-occupation criteria.

 An “any occupation” definition means that you only meet the criteria if you are completely unable to work.

 In addition, multiple levels of disability (such as “partial disability”) may also be established, which may entitle you to a portion of your entire benefit amount.

For high-earning professionals in particular, understanding the difference between any-occupation rules and own-occupation policies is crucial. A surgeon who is injured in a car accident and loses a portion of a finger might never operate again. A trial lawyer with throat cancer may not be able to effectively present a case in court or carry out other important tasks if their voice cords are compromised. Even if a professional is physically competent to undertake other jobs, being unable to execute the things they do best can have a significant influence on their earning potential. For this reason, professionals frequently opt for own-occupation LTD coverage.

Frequently asked question: “How much should I purchase?” An effective coverage will often replace 60% to 80% of your income. You’ll discover that insurance firms have one or more basic contracts with a typical set of features and provisions when you shop for an individual disability insurance policy.

Your contract needs to be personalized to your needs with riders based on the benefit sum, benefit period, and disability definition you select (optional provisions). Consider the following examples of provisions, features, and riders:

Non-cancellable clause: This clause prohibits the insurer from increasing your premiums as long as you continue to pay them. Usually accompanies a guaranteed renewability clause.

Guaranteed renewability: A clause stating that the insurance provider may increase your premiums but will not terminate your policy or change its terms and conditions if premiums are still being paid (unless the policy is also non-cancellable).

Premium waiver: This states that while you are disabled and receiving benefits, premiums are not required. Guardian takes things a step further by providing a plan with no premiums for an additional six months following your recovery and the end of your benefits.

Basic or enhanced partial disability benefit rider: These choices safeguard you by providing a portion of your compensation in the event that you experience an illness or injury that reduces your capacity for work but doesn’t result in total disability.

Cost-of-living adjustment (COLA): A insurance stating that your benefit will be increased while you are on claim to reflect inflation.

• Student loan protection rider: This extra benefit gives you extra loan to pay down student loans while you’re receiving the benefit. It is especially helpful for early-career professionals who have substantially invested in their education, such as doctors and attorneys.

Future buy option: With this, you can enhance coverage if your income grows in the future without having to get a medical checkup or show evidence of your ability to be insured.

Retirement Protection: A rider that replaces the contributions you would have paid to your defined contribution plan while totally disabled in order to protect retirement funds.

 • Catastrophic Disability Benefits: These payments can replace up to 100% of your income if you are permanently disabled or functionally impaired.

Many disability service providers offer the majority of the aforementioned characteristics in one way or another. Major carriers also give you various options to customize your coverage. Guardian, for instance, offers additional riders, like as one that waives premiums when unemployed, in addition to the optional ones mentioned below.


What is the price of LTD?

According to experts, the cost of an LTD plan should be between 1% and 3% of your annual salary.

 Of course, you should anticipate paying more for a larger benefit sum and a longer benefit duration. The cost of an own-occupation policy will be more than the cost of an any-occupation policy, and riders will also increase the cost, albeit gradually. Age and health have an impact on premium expenses since they have an impact on your chance of disability.

But there are ways to keep costs in check, like choosing a longer elimination period. Additionally, you might be able to choose a smaller benefit amount because an individual LTD plan’s payout is normally not taxed (unless it was paid for with pre-tax money).

Exist any practical alternatives to LTD insurance?

Your Social Security benefits also include Social Security Disability Insurance (SSDI), a government-sponsored disability insurance program. The fact that paying Social Security taxes does not immediately entitle you to coverage is just one of its many restrictions.

 Additionally, you need to accrue a certain amount of work credits, which are determined by your annual income overall. To qualify, you need forty credits, but since you can only earn four credits a year, it typically takes ten years to reach that threshold. When you pay your first premium for an LTD coverage from a private insurance firm, you become eligible for benefits.

A specific and constrained range of serious medical problems included in the Social Security Administration’s Blue Book are covered by the SSDI’s tight any-occupation definition of disability. Only chronic or irreversible medical conditions that render you incapable of performing any type of work are covered by the program.

Additionally, the application process for SSDI compensation is very difficult: About two-thirds of these claims are turned down in the initial application, which needs significant evidence and can take months to complete. 10 Although the original decision may be appealed, the procedure may take some time. In the event that your claim is approved, you’ll discover that the typical monthly reward is just over $1,000. 10 Experts advise against relying just on SSDI for disability insurance coverage because that is insufficient for the majority of individuals to live on.

Short-term disability insurance

Since STD benefits seldom last longer than a year, this insurance shouldn’t actually be viewed as a substitute for long-term disability coverage. However, if offered by your employer, it is a great addition to your LTD coverage since it can help you pay your bills throughout the waiting period of your LTD policy. Additionally, STD coverage can assist in lowering the overall cost of an LTD policy by making it simpler to choose a longer waiting period.

Plans for critical illness and accident insurance

If you have an accident or are given a serious health diagnosis, this coverage often offers a cash payment rather than ongoing income replacement. The benefit can be used for anything and is paid even if you don’t miss any work. Although these payments can be very helpful, they cannot offer you the same level of protection as an LTD policy.

Personal resources and savings

If you have enough non-retirement savings or significant assets to last you until retirement, you can “self-insure” by using those resources to provide income in the case of a disability.

Concerned about the LTD? Think about requesting a quote.

If the safety of an LTD policy appeals to you but the price concerns you, consider visiting with a financial counselor or broker who is knowledgeable about the particulars of purchasing an individual disability policy. A Guardian financial advisor can help if you don’t know one.

As much information as you can about your financial condition and worries should be provided to your advisor so that they may begin researching the plans and solutions that will best suit your requirements. Talk about several coverage scenarios: What happens if you suffer from a chronic illness yet eventually feel better? What if your physical condition prevents you from working as efficiently as you could? As you learn more, the value of obtaining long-term disability protection will become more


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