Private Long-Term Disability Insurance & Questions

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Long-term disability insurance pays cash benefits when you are unable to work and earn a living because of a disability. Like medical coverage, long-term disability coverage can be either through a group--generally an employer--or purchased privately. Private coverage is more expensive than group coverage and must be obtained through an insurance company or broker; rates may differ depending on your medical condition.

Do I need long-term disability insurance?

According to the non-profit Life Insurance Foundation for Education, about one out of three women--and one out of four men--will be unable to work due to a disability for 90 days or longer during their careers. One out of every seven workers will be disabled for five years or more.

What other disability benefits are available to me?

Your employer may offer long-term disability benefits or, if you are injured on the job, you may be eligible for Workers' Compensation benefits. For short-term disabilities that keep you off the job, you may be eligible for state disability insurance benefits. If you are permanently disabled, you may be eligible for Social Security Disability Insurance benefits. Private benefits will cover you when none of these are available.

How much does private disability insurance pay?

Most private long-term disability insurance policies pay 40 to 65 percent of your normal wages, according to the Life Insurance Foundation for Education.

What are the advantages of private long-term disability insurance?

The Motley Fool, a financial-services website that advises investors, notes three major advantages of private long-term disability insurance benefits:

  1. The benefits you receive will be tax-free, if you paid for the premiums from after-tax money.

  2. You can take your policy with you when you change jobs.

  3. You can get benefits that are commensurate with your salary, even if you earn a very high income.

What should I look for in a policy?

Private long-term disability policies can be as complicated as health insurance policies, so it is important to make sure you get the features you want--and do not get stuck with limitations you don't want.

  1. Make sure your policy is non-cancelable up to age 65. That means your premiums can't be changed as long as you pay on time. Don't fall for "guaranteed renewable" or "return of premium" policies; according to the Motley Fool, they don't lock in your premiums.

  2. Avoid "accident-only" policies. They don't cover disabilities that are not caused by accidents.

  3. Beware of clauses that exclude payment of benefits for pre-existing conditions that become disabling.

  4. Consider a "cost-of-living" rider, if you can afford it. It will increase the cost of your monthly premium, but will consider inflation in benefit payments; otherwise, your benefit amount might be based on your salary at the time you purchased the policy.

  5. If you have an emergency fund and could manage without immediate benefits, consider a longer "waiting period" for payments; it will lower your monthly premium.

  6. If you can afford the higher premium, look into a "residual benefits" rider, which will pay the difference between your salary at the time you were disabled and what you would have been paid if you were able to continue working.