Long-term disability insurance: Overview, definition, and example
What is long-term disability insurance?
Long-term disability insurance is a type of insurance that provides income replacement to individuals who are unable to work due to a serious illness or injury for an extended period. Unlike short-term disability insurance, which typically covers a few weeks or months, long-term disability insurance provides financial support for a prolonged period, often until the individual can return to work or reaches retirement age. This insurance is designed to replace a portion of the policyholder’s income, helping them cover living expenses while they are unable to earn a salary due to a disability.
The benefits of long-term disability insurance vary based on the policy but typically range from 50% to 70% of the individual’s pre-disability income.
Why is long-term disability insurance important?
Long-term disability insurance is important because it offers financial security for individuals who become unable to work due to a debilitating illness or injury. Without this type of coverage, individuals may face significant financial hardship if they are unable to earn income due to a long-term disability. This insurance helps mitigate the risk of financial instability, ensuring that people can still meet their financial obligations, such as paying bills, mortgages, and medical expenses.
For businesses, offering long-term disability insurance as part of employee benefits can help attract and retain talent by providing employees with a sense of security. For individuals, having long-term disability insurance provides peace of mind, knowing that they will have financial support in case of unforeseen medical events that prevent them from working.
Understanding long-term disability insurance through an example
Imagine Sarah, an office manager, who has long-term disability insurance through her employer. One day, Sarah is diagnosed with a chronic medical condition that requires ongoing treatment and prevents her from working. After exhausting her short-term disability benefits, Sarah begins to receive long-term disability benefits, which replace 60% of her pre-disability income for the duration of her condition, or until she reaches retirement age.
In another example, a construction worker, John, suffers a severe back injury on the job, making it impossible for him to continue his physical work. He has purchased a long-term disability insurance policy privately, which provides him with a monthly income to cover his expenses while he recovers. Even though John can’t return to work for an extended period, his disability insurance ensures he continues to receive financial support until he is able to resume working or until his policy’s terms end.
An example of a long-term disability insurance clause
Here’s how a long-term disability insurance clause might appear in an employee benefits package or individual policy:
“The Company offers long-term disability insurance to employees who have been employed for at least [X] months. The insurance provides income replacement equal to [X]% of the employee’s pre-disability salary after a waiting period of [X] days, and benefits are payable for up to [X] years or until the employee reaches retirement age, whichever occurs first.”
Conclusion
Long-term disability insurance is a crucial financial tool that ensures income replacement for individuals who are unable to work due to a severe and extended illness or injury. By providing ongoing financial support, this insurance reduces the financial strain on individuals and families during difficult times.For businesses, offering long-term disability insurance helps demonstrate a commitment to employee well-being and provides employees with an essential benefit. For individuals, having long-term disability insurance provides peace of mind and protection against the potential financial consequences of an unforeseen medical event that prevents them from working.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.