What is long term disability insurance?

If you rely on a steady paycheck to support yourself or your family, you’d be wise to protect that income with disability insurance.

Disability insurance is like insurance for your paycheck if you are unable to work. Disability insurance helps replace your income if you’re physically or mentally disabled and cannot go to work for a few months to several years.

After work-induced musculoskeletal disorders (think: carpal tunnel, tendinitis, and back pain), the most common disability insurance claims are for cancer, pregnancy, and mental-health issues like depression
and anxiety.

Most traditional employers offer short-term disability insurance (STD), but that usually only replaces up to 50% of your income for about three months, plus you’ll have to pay taxes on the payments. Also, these policies are contingent on your employment with the company. Most people need long-term disability coverage (LTD).

What is long-term disability insurance
Although the Social Security Administration offers disability insurance, the process for qualifying as disabled and getting approved for benefits is notoriously lengthy and difficult. Also, the payments are small compared to what you could get with a private policy.

In 2018, just 34% of workers had access to a long-term disability plan through their employer, according to data from the Bureau of Labor Statistics.

That’s why experts recommend buying long-term disability insurance for the most “comprehensive and cost-effective” coverage. Long-term disability insurance can effectively pick up where short-term coverage or your emergency fund leaves off, typically between 90 days and a year after the incident (known as the elimination or waiting period).

Long-term disability insurance pays a portion of your lost income from a period of one year to the rest of your life, depending on your policy. Individual long-term disability insurance has two types of policies that determine your coverage: any-occupation and own-occupation.

Any occupation vs. own-occupation long-term disability insurance
There are two types of individual long-term disability policies: any-occupation and own-occupation. It is important to understand the difference between the two, as certified financial planner Martin A. Scott wrote in an article for Insider, because it will determine whether you have coverage if you become disabled.

He wrote: Any-occupation policies cover a policyholder who is unable to work in employment that is in line with the person’s education and experience. Own-occupation policies provide coverage when an individual cannot fulfill responsibilities of their specific occupation, even if they still have the ability to work in another occupation.

Scott noted that own-occupation policies better protect income, but they’re also more expensive.

Scott used the following example of Barbara, a surgeon, who is in a car accident that hurts her hand. She can no longer work as a surgeon, but she could still work as another kind of doctor. If Barbara had an “any-occupation” policy, she would not receive disability benefits after her accident because “despite her injury, she has the ability to find employment in the medical field,” Scott wrote.

However, if Barbara had an “own-occupation” policy, she would be “entitled to receive disability insurance benefits until her hand fully heals and she can return to working in surgery,” Scott wrote. He noted that an own-occupation policy is extremely flexible; benefits would continue even if Barbara decided to work in a completely different field for a while.

Short-term vs. long-term disability insurance
You’ve probably heard of short-term disability (STD) through your employer. Short-term disability insurance covers lost income for about three months due to illness, injury, or pregnancy and recovery from childbirth. California, Hawaii, New Jersey, New York, Rhode Island, and Puerto Rico require employers to offer a form of short-term disability.

Short-term disability Long-term disability
  • Lasts for 13 to 26 weeks
  • Replaces 40% to 70% of base income
  • Short waiting period (“elimination period” usually 7 days) before receiving benefits
  • Plans vary, typically 5 years to retirement
  • Replaces 40% to 60% of base income
  • For most carriers, 90 days is the most common waiting period, but they can be 30, 60, or 90 days, or even 6 months or a year

Data from Guardian Life Insurance


The cost of long-term disability insurance
The cost of disability insurance depends on several factors, like your benefit amount, benefit period, occupation, health status, age and terms of the policy (whether it’s any-occupation vs. own-occupation).

The general rule is that the cost of an individual long-term disability policy is 1% to 3% of your annual salary, according to life insurance nonprofit organization Life Happens. Therefore, costs will vary widely from person to person. You can also pay extra for specific policies, such as “own occupation,” which stipulates that you will still receive full benefit payments even if you’re able to work, even a different job.

With long-term disability insurance, you’re responsible for choosing your coverage or benefit amount. The rule of thumb is around 60% of your gross salary. Other factors include: (1) the benefit period, which means how long your payments will last; and (2) the waiting or elimination period, which is how long you have to wait until your insurance payments kick in.

It’s important to note that some long-term disability insurance policies come with exclusions for preexisting health conditions. Insurers will review your medical records and if you had serious treatment for a past illness or ailment, it may be excluded from your coverage. In other words, if that specific condition prevents you from going to work and earning income in the future, your insurance will not step in.

Life Happens, a nonprofit life insurance education agency, provides a free disability insurance calculator

Ronda Lee
Founder, Editor-in-Chief
Ronda is an attorney, writer, and entrepreneur. She is a contributing writer for the Huffington Post. Originally from Chicago, she has lived in Los Angeles and New York. She loves to travel and is passionate about education equity, especially for first generation college students.