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Long-term disability insurance pays an ongoing benefit if you can’t work in your job due to an injury or illness.
The advantage of a long-term disability insurance policy is that the definition of a disability is extensive. As long as an illness or injury prevents you from doing your job, you should qualify for disability insurance benefits.
But what types of disabilities are covered? How do you define a disability? And are there any exclusions or limitations?
In this post, we explore what disability insurance covers.
Total Disability Insurance Benefits
With long-term disability insurance, the insurer starts paying a monthly income after you are disabled for the length of the elimination period, usually 90 to 120 days. It pays the disability benefit for as long as you’re disabled, up to the benefit period. The maximum benefit period is age 65, so you could receive benefits until retirement if you’re permanently disabled.
The amount you receive depends on the degree that you’re disabled, so let’s start by discussing a total disability.
Total disability
You have to meet the definition of disability to be considered totally disabled. This means that due to injury or illness,
- You are unable to perform the important duties of your regular occupation,
- You are not engaged in any other gainful occupation, and
- You are receiving the appropriate physician’s care.
This is known as the regular occupation definition of disability. Once you satisfy these conditions, you can start to receive benefits from your disability insurance policy.
Some low-risk jobs can also qualify for the own occupation definition. This removes the second requirement that you can’t be engaged in another gainful occupation. This means that you can receive disability benefits if you can’t work in your own job, even if you’re collecting a paycheck elsewhere. Own occupation is an optional upgrade on your disability insurance policy.
There is also the any occupation definition of disability, which makes it harder to receive disability income. To receive benefits, you also have to show you can’t work in any gainful occupation which you qualify for based on your education, training, and experience.
With some policies, the regular occupation period lasts for the first two years of a disability before turning into the any occupation definition. When you buy private disability insurance, you can choose to extend the regular occupation period to the length of the benefit period. However, this option isn’t available with group disability coverage, which is one reason why you should supplement group coverage..
Presumptive total disability
If you irrevocably lose your sight, speech, hearing, or use of two limbs, you’re considered totally disabled without satisfying any other requirements. That means you don’t have to show that you can’t work in your occupation to receive benefits.
Catastrophic disability
Some disabilities are so severe that the insurance company will pay an additional 25% to cover the costs of long-term care associated with the disability. For example, if you suffer a cognitive loss that severely impairs your short or long-term memory, you can qualify for catastrophic disability benefits.
Another way to qualify is if you lose the ability to do two of the following six activities of daily living:
- Bathing
- Continence
- Dressing
- Feeding
- Toileting
- Transferring
Partial Disability Insurance Coverage
Not all injuries or illnesses result in total disability. Often, they only prevent you from working full-time. That’s when you may qualify for partial disability benefits.
Partial disability benefits
If, due to an injury or illness,
- You are unable to perform one or more important duties of your regular occupation, or
- You are unable to perform the important duties of your regular occupation for at least half the time normally required, and
- You are receiving the appropriate physician’s care,
Then you can receive partial disability benefits. This is usually 50% of the total amount for the first 24 months, followed by 25% for the remainder of the disability.
Residual disability benefits
In some cases, you may suffer an income loss if you can still work in your occupation or any gainful occupation, but you’re not totally disabled. The insurance company will pay out a benefit proportional to your loss of income if it is at least 20%. If your income loss is 80% or higher, it will pay you 100% of your monthly benefit.
You may be able to choose between receiving partial or residual disability benefits, whichever is most beneficial to you financially.
Partial disability benefits are a huge advantage of private disability insurance over other types of coverages. Group coverage usually doesn’t have them. Neither does CPP disability benefit nor Employment Insurance.
Recovery Benefits
Your insurance company does not want to see you on a disability claim forever. In fact, it actively encourages you to recover and return to work. Not only do you stand to gain by resuming your career, but the insurer also wins by paying less money long-term.
Return to work assistance
Beginning the moment you file a claim, the insurance carrier will assist in returning you to work or enhancing your ability to work. It can pay for expenses like:
- Vocational rehabilitation programs
- Office renovations
- Job retraining courses
- Medical equipment
- Ergonomic furniture or equipment
You’ll want to get the expenses approved by the insurer to confirm their reimbursement.
Recovery benefit
Another benefit it may provide is the recovery benefit. This happens after you return to work but suffer an income loss of at least 20%. The recovery benefit is proportional to the income loss and pays for up to six months.
Other Disability Benefits
Besides benefits for total, partial, and recovery benefits, long-term disability insurance plans may also have the following benefits built-in or as an optional add-on.
Transplant surgery benefit
If your policy has been in force for at least six months, this will pay you disability benefits if you become disabled from cosmetic surgery or an organ transplant.
Waiver of premium
If you’ve been disabled for 90 days, your private disability insurance plan will waive premiums that come due while you’re disabled. It will also refund the premiums you paid during the first 90 days.
Survivor benefit
If you die while receiving disability benefits, your policy will pay a death benefit equal to three times the monthly payments to your beneficiary. This should help cover final medical bills and funeral costs.
Retirement protector
You can buy this optional rider to protect your retirement plan. By paying you a monthly benefit directly into a retirement account, you lower the financial impact of a long-term disability on your retirement. You can buy up to $2,000 benefit amount per month that the insurer will deposit into a retirement fund.
Accidental death and dismemberment
Disability insurance can also cover accidental death and dismemberment. Instead of a monthly income, you receive a lump sum payment if an accident results in death, loss of limbs, or loss of sight. You’re allowed to buy a maximum of $400,000 lump sum payment depending on the insurer.
What’s Not Covered By Disability Income Insurance
Of course, disability income insurance doesn’t cover every type of disability under the sun. If it did, premiums would be much higher than they are. To control costs, insurance companies implement various exclusions on their disability plans.
Exclusions
Every disability plan comes with policy exclusions. An exclusion means a disability caused by the excluded event will not result in payments from the insurer.
Every disability policy will have exclusions for disabilities caused:
- By war and any hazard arising from war
- Normal pregnancy or childbirth, although complications due to them are covered
- During any period you are incarcerated
Some disability plans also contain exclusions for self-inflicted injuries, driving under the influence of drugs or alcohol, flight as a crew member, and more.
You might also come across policies with limitations for certain injuries or illnesses. For example, there could be a limited benefit period for soft tissue injuries.
Pre-existing conditions
Besides exclusions that every disability policy contains, you might have other exclusions specific to you. The insurance provider will ask about your medical history and lifestyle during the underwriting process.
If you have any pre-existing medical conditions, they may also be excluded from your disability insurance plan. For example, if you have a history of mental illness or back pain, prepare to have disabilities caused by those conditions excluded from your policy.
In some cases, the exclusion is only temporary. If the insurer determines that the condition doesn’t pose a long-term risk, it may remove the exclusion in the future.
Do You Have Questions About Long-Term Disability Insurance?
At first glance, it may seem like long-term disability insurance covers injuries and illnesses of every kind. However, it’s more nuanced than that, as you can see.
The disability insurance contract will determine what is covered and what isn’t. If there are any disagreements, the wording in the contract prevails. That’s why it’s important to review it carefully when you buy disability insurance.
Private disability insurance is a vital part of a financial plan, especially if you are self-employed or don’t have group disability coverage through your employer or association. Talk to us to make sure you have the proper coverage in place.
If you have any other questions about disability insurance, reach out to us at info@briansoinsurance.com or 604-928-1628. To get a disability insurance quote, use the form below.
Get Your Disability Insurance Quote Now
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.
