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What is Long-Term Disability Insurance?

Lori Smith
Lori Smith

Long-term disability insurance is usually a low-cost, optional policy that employers may offer their staff members as part of a health benefits package. This type of coverage compensates employees for a loss of income due to injury or incapacity when an individual is not able to work. Unlike short-term disability, which generally applies to the first six-months, long-term disability insurance can provide a source of income for several years. In some cases, benefits may be extended until the person becomes a senior citizen, as long as he still qualifies under the terms of the policy.

Sometimes, a long-term disability insurance policy can be purchased outside of a group plan, but usually, an employer sponsors it. As a low-cost option, most people elect this type of coverage because it gives them peace of mind in case they become sick or injured and cannot earn an income. For example, people who are diagnosed with serious illnesses or are involved in major car accidents may sustain injuries that require extensive rehabilitation or a long period of incapacity.

Doctor taking notes
Doctor taking notes

Sick or injured people may not have the ability to work for extended periods of time, causing a substantial financial hardship. When these tragedies occur, most of them do not have the resources to continue paying their household bills and medical expenses. Long-term disability insurance pays them a certain amount of monthly income to help meet those financial obligations.

These policies are not typically designed to replace all of a person's lost income, however. Usually, the benefit amount is calculated as a percentage of the average salary an individual earned prior to becoming disabled. While the compensation is often more than half of the employee's previous monthly earnings, it seldom exceeds three-quarters of it. In other words, a person who used to earn $5,000 US Dollars (USD) per month would probably not receive more than $3,750 USD per month from long-term disability insurance benefits.

Most of the time, short-term disability is offered in addition to long-term disability insurance. If a covered individual is only expected to be incapacitated for a few months, then he may receive compensation from his insurance company based on the criteria for the short-term plan. If, however, the illness or injury does not heal or if other complications arise, then he might be eligible for long-term payments.

Many policies require a certain amount of proof that a covered applicant is unable to work. Disabled individuals may be required to provide statements from physicians, turn over medical records and diagnostic test results or provide other documentation before the insurance benefits are approved. For this reason, it is very important that all of the policy requirements be met when applying for benefits.

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