Disability insurance goes by a lot of names. Some people call it paycheck protection or income protection. Other people call it disability income insurance, long-term disability insurance or individual disability insurance. Regardless of what you call it, this insurance product offers critical protection for any working American. If you’re sick or injured and unable to work as a result, long-term disability insurance can replace some of your lost income. This helps you pay your bills and maintain your standard of life while focusing on your health and family. Disability can take many forms, including musculoskeletal disorders, cancer, heart disease, injuries and mental health disorders. The CDC says that 61 million adults in the U.S. have some form of disability.

Although some disability risks increase with age, younger individuals are also vulnerable. The Social Security Administration says that more than one in four of today’s twenty-year-olds will experience disability before reaching retirement age.

When disability strikes during a person’s working years, medical problems can lead to financial ones. Many people in this situation find themselves having to pay out of pocket medical bills while being unable to continue earning an income. 

For anyone living paycheck to paycheck, this can create an economic disaster immediately. However, even people with some savings may find themselves depleting their retirement funds and college tuition accounts quickly.

Long-term disability coverage provides a solution by replacing a portion of the lost income. Because the risk of disability is so great, this is an insurance product that all working Americans who depend on a paycheck should have.

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How Long-Term and Short-Term Disability Insurance Differ

  • Long-term disability insurance is similar to short-term disability insurance, but there are several key differences.
  • The maximum benefit period is probably the most obvious difference, and the one that’s hinted at in the names. Short-term disability insurance is designed to replace income during temporary periods of disability, and the maximum benefit period typically lasts for six months at the longest, with some policies providing even shorter benefit periods. Long-term disability insurance policies, on the other hand, have much longer maximum benefit periods. There is considerable variation, but benefit periods often last for two years, five years or 10 years, and some even pay benefits until normal retirement age.
  • The elimination period, also called the waiting period, is also different. This is the amount of time that must lapse before the policyholder can receive benefits. Because short-term disability insurance policies are designed to cover shorter health issues, the elimination period is short, often around a couple of weeks. The elimination period for long-term disability insurance is longer, often around 90 days, although shorter and longer periods are available.

The benefit amount can also differ. Group long-term disability insurance often replace up to 60% of regular income, while some short-term disability insurance may replace a slightly larger percentage. This can make short-term coverage sound appealing, but keep in mind that the benefits do not last very long. In the long run, long-term disability coverage can provide a much larger total benefit amount.

Short-term disability insurance may be adequate to cover a broken leg or difficult pregnancy, but it may not be adequate for many health issues that require more recovery time or are permanent. In these cases, long-term disability insurance is needed. The good news is that you don’t need to pick one or the other. You can secure both types of coverage to make sure you’re protected

Securing Long-term Disability Insurance

Workers who want to purchase LTDI coverage may have options.

1

Employers

often provide access to coverage. The premiums may be paid by the employer, or they may be paid by the employee on a voluntary basis. Employees can benefit from group rates and streamlined underwriting. For groups of three or more, a multi-life disability insurance discount may be available, and for groups of five or more, guaranteed standard issue disability insurance plans are available.

2

Individuals

can also buy disability insurance on their own. Often called individual disability insurance, or IDI, these plans are fully portable. This means that workers don’t have to worry about losing coverage when they switch jobs or go into business for themselves. There are also more coverage options, allowing policyholders to customize their benefit periods, elimination periods, benefit limits, definitions of disability and additional coverage options.

Just like you don’t need to decide between long-term and short-term coverage, you don’t need to decide between
employer-based LTDI and IDI. You can purchase both types of coverage to make sure you’re well protected.

Offering LTDI Employee Benefits

  • This is an untapped opportunity for many employers. By providing LTDI, you can help your employees secure coverage with discounted group rates. For workers with pre-existing medical conditions, work-based guaranteed standard issue coverage might be their best option for coverage and the financial safety net it provides. Employees will benefit from great coverage, and the employer benefits from having employees who are loyal, engaged and able to focus on their work instead of worrying about their finances.
  • Even if employers already offer short-term disability insurance coverage, they should consider adding long-term benefits, as well. These two products serve different purposes, and short-term coverage cannot replace long-term coverage.
  • Adding this benefit doesn’t have to break a company’s budget, either. When employers offer LTDI as a voluntary benefit, employees can pay for the entire cost of premiums through payroll deductions. Offering coverage represents a minor investment on the company’s part, but the return in employee satisfaction can be tremendous.
  • Employers can help their workers by offering group disability plans as part of a benefits package. Unfortunately, many employers fail to do this. According to the the U.S. Bureau of Labor Statistics, only 35% of civilian workers had access to long-term disability benefits in 2020, compared to 40% with access to short-term disability benefits. Even among workers with wages in the top quartile, only 59% have access to employer-provided long-term disability coverage.

Helping Individuals and Employers Review LTDI Coverage

If you’re an insurance agent, you can help your clients by raising disability awareness and making sure they have the right LTDI coverage for their needs.

When talking to employers, help them assess their employee benefit offerings. Here are some questions to address:
  • Are you offering LTDI to your workers? If not, it’s time to change this.
  • Is enrollment in LTDI coverage high? LTDI provides important protection, but employees might not participate if they don’t understand their options. If participation rates are low, you might just need to provide some more employee benefits education.
  • Are you offering the right LTDI options? Plans can vary in important ways, including benefits and cost.
When talking to individuals, help them determine what coverage they already have and whether it’s sufficient. Here are some questions to ask:
  • Do you have any coverage? If you don’t, think about what would happen if a disability prevented you from earning a paycheck. How long could you survive off your savings? What would happen next? If you don’t have good answers, you need to look into securing disability insurance.
  • If you have coverage, what type of coverage do you have? Do you have long-term disability insurance or short-term coverage? Do you have portable individual disability insurance or job-based long-term disability insurance?
  • Do you need more coverage? Consider whether the monthly benefits would be enough for you to live on. Also consider whether the benefit period and other-terms would be sufficient for your needs if you experienced an extended illness or serious injury. If you’re not happy with your current coverage, you can replace it, or you can stack policies to get more coverage.

Do you need help meeting your clients’ long-term disability insurance needs? DIS can help.

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