Definition of Long-Term Disability Insurance
Long-term disability insurance, or LTD, provides payments if the insured becomes too injured or sick to work. Policies can be bought to provide coverage for different lengths of time. LTD plans come with different features and riders that benefit policy owners. These plans can be bought individually, or employers can sponsor coverage for their workers.
Other People Are Reading
-
Facts about LTD Plans
-
LTD plans are one of two types of individually owned disability policies available in the United States. The other is with short-term disability, or STD, coverage. Applicants have a choice to purchase LTD plans covering two years, five years, or up to age 65. Before any benefits are paid, the insured has a waiting period of up to 6 months.
Benefits
-
LTD applicants have a choice of purchasing two types of LTD plans: non-cancellable and guaranteed renewable. Non-cancellable LTD plans cannot be terminated by the insurer, and premiums cannot be raised.
Guaranteed renewable plans can’t be canceled by the insurance company as long as the insured is making his payments. But premiums can be raised by the same amount for everyone who has the same policy or occupation (class).
-
Considerations
-
Insurance companies price their premiums based on information submitted on the application. Some of the factors include the applicant’s age, gender, occupation, health history and coverage amounts. One of the most important factors is the applicant’s occupation. Premiums for group LTD plans are based on the information provided as a whole. If an applicant’s occupation has a history of making claims, insurers charge higher premiums. It is possible for clerical workers to pay more for LTD coverage than people in physically demanding fields such as construction pay.
Misconceptions
-
Depending on how the premiums are paid, LTD benefit payments can be considered taxable income. If the insured is covered under a LTD plan sponsored by her employer, her benefits will be taxed. However, LTD benefits are not considered taxable compensation if the policy owner is paying the premiums with after-tax dollars.
LTD benefit payments are less than the insured’s normal salary (typically 60 percent to 70 percent), according to MetLife.
Warning
-
Becoming disabled isn’t rare. Workers who are 20 years old have a 3-in-10 chance of becoming disabled during their working years, according to the Social Security Administration. And the average length of time workers miss because of disability is 2.5 years, according to the Council for Disability Awareness. Unlike group LTD plans, applicants for individually owned policies can be denied coverage if the insurer determines their risk is too great.
-
References
Resources
- Photo Credit money image by saied shahinkiya from Fotolia.com
