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Do you ever fear that you might not be able to work and take care of your family one day? After all, lots of people live with disabilities and are unable to work. Disabilities that could derail their financial plans if they last a long time.
You might worry about the financial impact of a long-term disability. However, there is a solution—long-term disability insurance (LTD). It can help you survive the most challenging time of your life.
But how long does long-term disability insurance last? And what are the factors that affect this? Keep reading to find out the answers to these and more.
How Disability Insurance Works
With income protection, you start to receive benefits when you cannot work due to a disability. A disability can either be for a short or long term. Insurance companies cover both types of disabilities, but with different coverages. Let’s get into the details of each.
Short-term disability insurance
Short-term disability is when you cannot perform your duties for a short period due to a disability. The disabilities that prevent you from working can be:
- An injury in an accident
- Complications from a pregnancy
- Recovery from a surgery
- An illness
If you have any of these disabilities, you can apply for STD insurance.
The elimination period—also known as the waiting period—is the duration for which you have to remain disabled to start the benefits. For STD insurance, this is usually 7-14 days.
That means if you recover within the first 14 days, you cannot claim your benefits. But, if you are still ill, you can get payments for up to 3-6 months. It all depends on your plan.
Most of the time, your workplace benefit package includes STD. So, you might not have to worry about buying a policy yourself. But, if your workplace does not provide you with an STD plan, or if you’re self-employed, then you may need to get it yourself.
Long-term disability plans
Don’t underestimate how likely a long-term disability is to occur. According to statistics, 25% of Canadians may become disabled for 90 days or longer before age 65. Once a disability reaches 90 days, it lasts 6 years on average! A disability that prolonged can cause a great deal of stress, with the potential of ruining your financial plans. So, to secure your future, it’s a good idea to get LTD insurance.
Because of the long-term nature of these disabilities, insurers offer LTD insurance on top of STD insurance. The insurance company defines what a disability is in its long-term disability policy. For disability claims, you have to qualify for its definition of disability.
The importance of the definition of disability
The two most common definitions are own occupation and any occupation.
Own occupation means the insurance company continues to pay benefits if you can’t work your own job, even if you started another one elsewhere.
Any occupation means if you are disabled in your job but can perform any other occupation that you qualify for based on your training, education, and experience, you would not be able to claim benefits.
Because of the better guarantee that the former provides, an own occupation policy costs more than any occupation one. That’s why you should try to get an own occupation disability policy even if it costs more.
How long does long-term disability last through an employer?
If you plan to get LTD, the best way to get it is via an individual disability policy. It might cost more than group LTD insurance, but the benefits of an individual policy are much better than group insurance.
While a group plan can be cheap—or free, if your employer pays for it—you cannot tailor the policy according to your needs like you could with an individual policy.
Another perk of individual plans is you would not be subject to any tax for the long-term disability benefits. That’s because you pay the premium with after-tax money.
Because group insurance is usually paid by an employer, the monthly payments are subject to tax. On a positive note, the employer can get a tax deduction for the premium it pays for long-term disability insurance.
Another downside to group LTD is that the definition of disability changes to any occupation after 2 years on a claim, making it harder to continue receiving benefits.
Self-employed professionals who don’t have access to benefits through work will have to buy their own LTD policy.
When Do The Benefits Start?
As mentioned before, the benefits for LTD do not begin right after you become disabled. There is a waiting period before payments start to kick in.
When you buy LTD, you get to choose the waiting period. It can be 30, 60, 90, 120, 180 days, or even a year. The longer it is, the lower the premiums will be.
How to choose the right waiting period
Choosing a waiting period should be considered carefully. If you have enough savings to last a few months, you can go for a more extended elimination period. But, if you have many expenses and don’t have much savings, you should choose a shorter waiting period. The standard waiting period is 90 days. However, you can cut it down to as short as 30 days or increase it to one year.
If you have STD insurance, then you can choose a more extended waiting period. STD benefits will cover your living expenses while you wait for LTD to kick in. Having both STD and LTD insurance will help you cope financially with a disability.
While a longer elimination period will help you save on premiums, you will need to ensure you have enough cash to get you through this time. That’s why you should check your financial situation to decide the best period for you.
Does Long-Term Disability Last Forever?
After the waiting period ends, the benefit period starts. You start getting what you paid for. The benefit period usually lasts from 2 years on the short end to the age of 65 on the long end. In between, there are 3, 5, or 10 years to choose from. During this time, the insurance provider pays you a monthly benefit for the duration mentioned in the plan.
Most people buy the highest benefit amount that they qualify for, which is usually between 60% to 80% of your salary.
How to choose the right benefit period
Because the premium depends on the benefit period, it may be tempting to go with a shorter time, like 2 years. However, this would leave you with a lot of financial risk in case of permanent disabilities.
That’s why the safest of all these is the one until retirement. By selecting this, you can be financially stress-free in case of a lengthy disability. Now it will be on the insurance providers to cover your income, and you are guaranteed to receive a part of your income until you retire.
When will the insurance company end your disability benefits?
Change from own occupation to any occupation: As previously discussed, there are two main definitions of disability: own occupation and any occupation. The definition can have a direct effect on your ability to continue receiving benefits.
Even though you might not be able to do your previous job due to disability, the insurer may feel that you can do another job without an issue. According to the terms of an any occupation policy, you are no longer a disabled person. Therefore, the insurance provider can change your status and end the benefits that you receive.
That is why you need to understand the definition of disability of the LTD policy that you want to buy. Most importantly, pay attention to how long the own occupation definition lasts. For many plans, it switches to any occupation after 2 years.
Benefit period expires: One of the main reasons for your benefits ending is the expiry of the benefit period. As mentioned, the duration for benefits usually ranges from 2 years to age 65. It’s a choice you have to make when you buy your income protection plan.
You might also have a shorter benefit period if you have a pre-existing condition. For example, if you have back pain, you might have a clause that limits the benefit period to 5 years or shorter.
You recover: Not all disabilities last the length of the benefit period. If you recover from the disability—no matter how many years are left in your benefit period—the insurance provider will stop paying benefits.
Fraud: If you think you can fool the insurance providers by providing compromised medical reports, think again. Insurers have lots of experience with fraud. In fact, they have a whole system to verify the validity of your disability claim. They can even hire a detective to investigate your claim. If they find out that you have misrepresented your disability, they can reject your claim. Worst of all, they can even file a lawsuit to recover any previous benefits that you might have received.
Not getting the necessary care: To continue receiving benefits, you have to be under the constant care of a medical professional. If you decide not to take the doctor’s advice or stop seeing a specialist, the insurance company has the right to stop paying you benefits.
These are some of the things that can end your benefits.
When will the insurance company reduce your disability benefits?
Apply for government support: The insurance providers can ask you to file for a government support program. So, if you apply for government funding, your insurance provider can subtract that amount from your monthly payment.
Partial disability: If you are not completely disabled but still have problems doing your work, the insurer can declare you partially disabled. By doing so, it can reduce the benefit amount that you receive.
Need Help Finding The Right Policy? Contact Us Today!
Are you looking for disability income insurance but are not sure what policy you will need? You can contact us today. We can provide you with the best guidelines and help you get an insurance policy that will not only help you today but for years to come.
As experienced insurance agents, we have already helped a lot of families buy insurance plans. The plans helped them when they were in desperate need after a disability.
Contact us today at info@briansoinsurance.com or (604) 928-1628 to see how you can benefit from buying your own LTD insurance policy.
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While we make every effort to keep our site updated, please be aware that timely information on this page, such as quote estimates, or pertinent details about companies, may only be accurate as of its last edit day. Brian So Insurance and its representatives do not give legal or tax advice. Please consult your own legal or tax adviser. This post is a brief summary for indicative purposes only. It does not include all terms, conditions, limitations, exclusions, and other provisions of the policies described, some of which may be material to the policy selection. Please refer to the actual policy documents for complete details which can be provided upon request. In case of any discrepancy, the language in the actual policy documents will prevail. A.M. Best financial strength ratings displayed are not a warranty of a company’s financial strength and ability to meet its obligations to policyholders.
