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Is Long-Term Disability Insurance Worth It?

By Anna Yen
is long term disability insurance worth it

Disability insurance, like life insurance, is one rope in many families’ financial safety net. It is designed to protect assets and income in case of catastrophic events. For instance, most people who pay taxes regularly qualify for Social Security’s long-term disability insurance network. But many employers and private insurance policies also include similar disability benefits, which begs the question, “Is long-term disability insurance worth it?” 

Is it worth paying for long-term disability?

In short, yes. Paying for long-term disability insurance is worth it, especially as it’s usually cheap. According to Policygenius, disability insurance only costs between 1% and 3% of your income, even though 1 in 4 people in their twenties will become disabled before they retire. 

But not all situations or people either need or are eligible for disability insurance. For instance, if you’re a healthy person working a low-risk job, you might forgo long-term disability insurance altogether in favor of using the Social Security financial safety net as your fallback. 

But before you decide, you should understand what disability insurance is and how it works. 

What is long-term disability insurance?

Long-term disability insurance is a policy that protects you in case you become unable to work due to illnesses, injuries, or accidents. Unlike workers’ compensation, long-term disability does not cover work-related accidents or injuries. It does cover personal accidents, including falls, car accidents, or debilitating illnesses.  

How does long-term disability work?

To cash in on your long-term disability benefits, you first have to receive an official disability diagnosis from your doctor. Then, you have to go through an elimination period, which is the time that passes from the moment you’re diagnosed or injured to the moment you start collecting checks. 

Typically, this period is anywhere from 30 to 90 days, though it can last up to a year depending on your policy. The elimination period ensures your disability is actually long-term and that short-term benefits don’t overlap. 

Keep in mind that the shorter your elimination period, the higher your premium. A 90-day elimination period is usually cost-effective. Just be sure you have a rainy-day fund to tide you over.

What can you use long-term disability benefits for?

Long-term disability insurance is there to help you with everyday expenses when you lose your income as a result of a disability. For instance, you can:

  • Pay your utility and grocery bills
  • Make your rent or mortgage payments 
  • Cover additional medical expenses
  • Keep yourself and your family clothed

In essence, you can use your benefits to pay for anything you’d use your income on, even the occasional date night! 

How do I get approved for long-term disability benefits?

As part of your disability benefits application, your doctor will submit a statement on their opinion of your condition, as well as applicable clinic notes, lab results, surgical reports, X-rays, or MRI findings. Then, the insurance company will review your claim and current status. If you’re approved, they’ll start paying out as soon as the elimination period is over. 

One important note: to show that your disability is truly ongoing, you’ll need to continue receiving treatment for your disability while your claim is pending and after receiving benefits. Otherwise, the insurance company may cut you off.  

How long can you stay on long-term disability?

According to Insure.com, the average long-term disability claim is around three years. But depending on your policy, you may qualify for a benefit payout period of two, five, or ten years. You might even qualify until retirement, too!   

How much of your salary do you receive on long-term disability?

Your disability policy will pay out according to your working salary, with average long-term disability benefits covering 60% to 80% of your after-tax salary. Usually, this amount comes close to, if not matches, your take-home pay, as disability benefits are not taxed as income. 

Who pays health insurance while on long-term disability?

By definition, long-term disability insurance covers disability that lasts more than three months. As such, FMLA protections–which expire after only 12 weeks–don’t cover employees who are on long-term disability. You may qualify for Medicaid, Medicare, or subsidized marketplace plans.

Do you have to pay back long-term disability benefits?

If you’re unable to work due to disability, you can apply for both Social Security and long-term disability insurance benefits. In many cases, you’ll receive both. In fact, many long-term disability policies have an offset provision that involves three requirements:

  • You must apply for Social Security benefits.
  • Reduced monthly long-term disability payouts are based on your Social Security payout.
  • You must pay back any long-term disability payouts over the reduced amount if you receive any lump sum catch-up Social Security payments.

Social Security’s definition of disability may be even stricter than your insurance company’s definition. As such, many individuals don’t end up paying back anything because their Social Security application is denied. But it does happen occasionally, so it’s best to be prepared. 

Don’t let a loss of income drag you down!

So, is long-term disability insurance worth it? Most often, it is worth it. For a relatively low cost, you can protect assets and still have a source of income despite being out of work. But if you’re worried about the portion of your income that disability insurance doesn’t pay, don’t be!

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