What’s your most valuable asset? If you’re like most people, you’ll probably say your house, your car, or your retirement savings. But unless those things are worth well over a million dollars, you’re probably wrong. Your most valuable asset is your future earnings.
According to the Social Security Administration, the average high school graduate will earn over one million dollars during their life, and the average college graduate will earn over two-and-a-half million.
Your home and your car are probably well insured, and your 401(k) is probably very secure, but what about your future income that’s worth far more than all of those things combined?
If you’re employed by a large company, it’s likely that you have long-term disability insurance provided as an employee benefit at little or no cost to you. But if you work for a small company or you’re self-employed, you may need to think about providing it yourself.
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Here are the things you should consider when purchasing long-term disability insurance.
How Long Does Individual Long-Term Disability Insurance Last?
Unlike group disability insurance provided by an employer where the employer chooses the options, when purchasing individual disability insurance, you’ll be able to choose these options yourself. There are three major choices you’ll need to make and they will all affect the cost.
- Coverage amount: How much do you need every month when you’re not collecting a paycheck? Be realistic. No insurance company will cover your full salary because that encourages fraud, but keep in mind that if you’re paying for your own disability insurance with after-tax dollars, the disability payments you receive won’t be taxed. This is why most long-term disability policies will pay only about 60%-66% of your current salary.
- Benefit period: This is how long the payments will continue after you begin receiving them and you remain disabled. Your choices will be in increments of 5 or 10 years, or until retirement. As you might expect, the cost goes up as the benefit period increases. Since most long-term disabilities last an average of three years, you should probably choose a period of at least five years.
- Waiting period: Long-term disability insurance has a waiting period, known as the elimination period. This is the time between when you become disabled and when you begin receiving payments. This period is often 30 or 60 days, and that’s the time that short-term disability insurance covers. As you would expect, the shorter this period is, the more the insurance will cost you.
So the short answer is that you can buy long-term disability insurance for up to the length of time you expect to remain employed, but you can’t go beyond that, and you should probably buy at least five years of coverage.
How Long Does It Last Compared to Group Insurance?
Group disability isn’t fundamentally different from individual disability, so the benefit period is as described above. The major difference is who pays for it, and therefore who chooses the benefit period. Of course, if you own your own business and you provide group disability for your employees, then it is you who chooses.
How Long Does It Last Compared to Short-Term Disability Insurance?
Short-term disability is intended to cover the gap between when you become disabled and when your long-term disability coverage begins, or when you become able to resume working, whichever comes first. The length of short-term disability can range from one or two weeks up to two years, with 30 to 90 days being common.
What Occupations Should Consider Long-Term Disability?
The answer is simple: any occupation you depend on for income. While dangerous occupations and hobbies may increase the risk of becoming disabled, there are many ways you can become disabled other than through injuries.
In fact, illnesses account for the majority of disability claims. So it’s safe to say that if you depend on your income to maintain your standard of living, then you should probably carry long-term disability insurance.
How Long Does Long-Term Disability Last after Leaving a Job or Getting Fired?
If you quit or lose your job, you no longer have an income to protect and become ineligible for disability insurance. However, if you were collecting disability payments when you quit or lost your job, those payments will continue until either you’re able to resume working again or the benefit period ends.
What to do when it runs out?
If you’re on long-term disability when the benefit period expires and you’re still unable to work, you may be able to qualify for Social Security Disability Insurance (SSDI) benefits. In order to qualify, you must meet the following requirements:
- Be unable to work because you have a medical condition that is expected to last at least one year or result in death
- Not have a partial or short-term disability
- Meet the Social Security Administration’s definition of a disability
- Be younger than your full retirement age
The application process for SSDI disability can be a lengthy affair and many applicants are denied, so you should begin the application process well before your long-term disability insurance expires.
Why Choose an Independent Insurance Agent?
A vast network of independent insurance agents can provide you with a large selection of individual long-term disability policies that will provide you with the security you need to protect yourself and your family from an unexpected loss of income.
Independent insurance agents simplify the process of shopping for and comparing disability insurance. They will explain the complex terms for you, cut through the jargon, and make sure you understand the fine print.
But perhaps most importantly, they work for you – not one insurance company. They can compare policies from many companies and pick the ones that are best for you at the best possible price.
They’ll also be there for you in the future if your needs change or questions arise. They work for you, and their only job is keeping you satisfied now and in the future.
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Social Security Administration