Long-term disability insurance (LTDI) works in tandem with short-term disability insurance (STDI), kicking in after your STDI coverage expires, to protect your income in a situation where you find yourself unable to work due to a physical or mental disability. If you are unfortunate enough to find yourself in a situation where you have become disabled, how does long-term disability insurance work and what do you need to know?
LTDI insurance can be offered by employers or purchased individually if not available through your employer. If it is not available through your employer, you absolutely should purchase a policy yourself, especially if you are the head of a household that relies on your income.
The Application Process
If you are purchasing coverage yourself, use the vast tools available online to compare quotes from different companies. Not only do you want to find the most coverage for the cheapest price, but you should also look online for reviews from customers. In the event that you do need to apply for long-term disability benefits, you want to make sure you are with a carrier that is going to give you as little difficulty as possible in processing and approving your claim.
The paperwork is pretty standard across all carriers for your application. It will cover basic information, job details, and you will probably be asked for income verification. You will also need to sign an authorization so that your health information can be sent to your insurer.
The application process will also include a medical exam. The medical exam will only be about 30 minutes and the insurer or your insurance broker will handle setting it up. A technician will be dispatched to your home or place of work. They will take your basic information like height, weight, pulse, blood pressure along with a urine sample.
Make sure that you mention any pre-existing conditions you have. Failure to disclose a pre-existing condition could be the basis for a claim to be rejected in the future.
A representative from the insurer will conduct a short phone interview to ask some questions about your lifestyle. They will want to know things like if you travel a lot or engage in hobbies such as skydiving and white water rafting.
Once the application process is complete it is reviewed by the insurance carriers underwriters. The underwriting and approval process could take two to three weeks. If you are healthy and fit, the process is usually faster. If there is a more involved medical history, the process will be a little longer.
Once the policy is approved, it is delivered to you to sign it and make your first payment to activate your coverage.
How Much Does It Cost?
Costs will vary based on your medical history, risk assessment, and coverage amount. A good rule of thumb is to expect your LTDI policy to cost between 2 and 4% of your annual salary each year.
What If You Become Disabled?
In the event that you become disabled and are unable to continue working, you will need file a disability claim.
An long-term disability claim usually requires information about your job and medical paperwork regarding your diagnosis. These are normally in the form of statements and documents from your physician or physicians.
The insurance company will review the claim and provide one of three possible replies. They will either approve it, request more information, or deny the claim.
If your claim is denied, there is an appeal process that will be outlined in your policy. Once you have exhausted the appeal options, your case is eligible to go before a judge in federal court.
Once your claim is approved, you will need to wait out your policies waiting period, called an elimination period. Your benefits will not begin until after the elimination period is over. Elimination periods will vary by policy and can range from 30 days to one year.
The longer your elimination period, the cheaper your premiums will be. If you have a healthy savings, you could elect to go with a longer elimination period to save money on the premiums. Otherwise, you will want the LTDI benefits to kick in as soon as your STDI benefits expire or very shortly afterwards.
Once you start receiving benefits, you will continue to receive the monthly benefit for as long as it is specified in your policy. The benefit period might be just a few years or last the whole way up to the retirement age of 67 when Social Security benefits would kick in.
A longer benefit period will have a higher premium, but unless you are independently wealthy, choosing a policy that offers benefits up until retirement age is the wisest decision.
Your benefits would also end if you are able to return to work. Some policies have stipulations where you can still receive a portion of your monthly benefits if you are only able to return to work in a limited capacity.
If you have coverage options through your employer but are worried that the offered coverage is not enough, you can look for supplemental disability policies to provide a little more coverage.
The most important thing though is that you have some sort of coverage, whether it is through your employer or a policy you purchase on your own. Not many families could endure the hardship of one of their breadwinners suddenly finding themself no longer able to work.