Long-term disability: Overview, definition, and example
What is long-term disability?
Long-term disability (LTD) refers to a type of insurance or benefit provided to individuals who are unable to work for an extended period due to a serious illness, injury, or other health-related issues. This insurance is designed to replace a portion of a person's income while they are temporarily or permanently disabled, typically after short-term disability benefits have expired. The purpose of long-term disability insurance is to provide financial support and help cover living expenses during the period of incapacity.
LTD benefits are usually paid for a specified duration, such as a few years, or until the individual reaches a certain age (e.g., retirement age). The specific terms, such as the duration of benefits and the percentage of income replaced, depend on the policy.
Why is long-term disability important?
Long-term disability is important because it provides financial security for individuals who cannot work due to serious health conditions, allowing them to maintain their standard of living while they recover or adapt to new circumstances. Without this support, individuals who are unable to work due to illness or injury might face significant financial hardship, leading to difficulties in paying bills, medical expenses, or basic living costs.
For employers, offering long-term disability insurance as part of employee benefits helps ensure the wellbeing of their workforce and can reduce the financial burden on employees during difficult times. For employees, having access to LTD insurance provides peace of mind knowing they will receive some financial support if they are unable to work for an extended period.
Understanding long-term disability through an example
Imagine an office worker suffers a severe car accident and is unable to return to work for several months. Initially, the worker may receive short-term disability benefits to cover the first few weeks or months of their recovery. However, once the short-term disability benefits run out, the worker begins receiving long-term disability benefits. These benefits replace a portion of the worker’s income (usually between 50% and 70%) and continue for as long as the worker remains unable to work or until they reach the age defined in their policy.
In another example, a teacher who has been diagnosed with a chronic medical condition that prevents them from working full-time applies for long-term disability benefits. The insurance pays the teacher a portion of their salary for several years, allowing them to focus on treatment and recovery without worrying about income loss.
An example of a long-term disability clause
Here’s how a long-term disability clause might look in an employee benefits contract:
“The Employer will provide long-term disability benefits to eligible employees who are unable to work due to illness or injury. The benefit will cover up to 60% of the employee's pre-disability salary, payable for a period of up to [X] years or until the employee reaches the age of [Y], whichever comes first. Eligibility and specific terms are subject to the terms of the long-term disability insurance policy.”
Conclusion
Long-term disability insurance is an essential benefit that helps provide financial security to individuals who are unable to work for an extended period due to illness, injury, or other health-related issues. By replacing a portion of the individual’s income, long-term disability insurance ensures that people can maintain their financial stability and focus on their recovery. For employers, offering long-term disability benefits is an important way to support the wellbeing of their employees and attract top talent, knowing that employees are cared for in case of unexpected health challenges.
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.