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Understanding Long Term Disability Insurance Benefits and Policies

The Need for Long-Term Disability Coverage

Disability insurance is an integral part of an employee benefits package. There are many companies that opt to provide a short term disability plan or not at all. But most companies do decide to offer long-term disability insurance that is funded through a disability insurer. Statistics show that three out of 10 employees will encounter an illness or injury that will prevent them from doing their work for up to three years and beyond, with over 60% of this illness or injury happening off the job. Employees that get injured or fall into illness off the job will not be covered by worker’s compensation benefits. So when an employee is sidelined from work for a long spell, long-term disability insurance can replace the income that is lost by covering a percentage of their salary. Long term disability will start paying benefits after the short-term benefits have run out.

Who Shoulders the Premium Payments?

Companies used to shoulder the full amount of the premiums for their employees’ long term disability insurance. But trends and costs have been moving away from this practice. These days there are different costs and tax implications affecting which long-term disability insurance option one chooses. The types of plans in terms of who is paying the premium are the employer fully paid plan, the employee fully paid plan, and the shared cost plan.


Employers decide on the amount of coverage they will elect for their staff. Typically, a long-term disability plan covers 50 to 70% of the employee’s monthly salary. The period of time in which the benefits will be paid may also extend for a longer period of time. Some companies will only pay five to 10 years worth of disability benefits to qualified employees and other companies are generous enough to keep paying till the qualified employee reaches the age of 65.

According to plan rules, an employee filing for disability will only qualify for benefits under certain conditions and these are:

  • The employee needs to have worked for the company for a fixed amount of time to qualify for benefits
  • The employee needs to be working full time for a minimum of 30 hours a week

The long term disability plan benefits package may include a percentage of the employee’s monthly salary that will start being paid out between 90 to 180 days.

Plan Terms

Based on the plan rules, an employee on long term disability may be restricted in terms of how much coverage they receive. Their benefit provider my urge them to choose another career they may qualify for or to acquire a new work skill. An option that typically applies to company officers or highly skilled employees is a contract for long term disability where they are allowed to receive benefits for the duration of the coverage, without needing to switch professions.

Long-Term and Short-Term Disability Income Insurance

These two income replacement insurance policies differ in purpose. Short-term disability insurance comes first and pays benefits sooner for a shorter period of time than long-term disability insurance.

Under the terms of a disability insurance policy, there is a waiting period from the time of the disability before benefits are paid out. It is common for short-term disability insurance policies to have two different wait periods for accidents and illnesses. The wait period under long-term disability insurance can range from 30 to 720 days, but is typically a 90-day period.

Your benefits under a disability claim will be paid out to you until you are fit enough to return to work or until the plan is maxed out. If your company does not offer disability insurance and you cannot afford both short-term and long-term insurance coverage, it would be more sensible to purchase long-term disability coverage. The rationale behind this is that disability usually run for only a short time and you can go through the disability without insurance. A long-term disability on the other hand can pose a serious threat to your finances and the need for income replacement is greater.

Other Considerations

You should also look into the other types of insurance or protection you have before purchasing disability insurance. Check your eligibility for government-sponsored disability coverage including worker’s compensation and Social Security. You should not purchase insurance coverage that you already have. Consider what you can afford to purchase, short-term disability insurance is more affordable than long-term disability insurance as the benefits are paid off in a shorter span of time.