Helping Employees Choose Benefits: What Is a Long-Term Disability Plan?

If a worker becomes unable to work for an extended period of time (due to illness or injury), long-term disability insurance can replace their lost income.

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Your long-term disability plan questions, answered

Being a small business owner means you wear a lot of hats. Especially if you don’t have a dedicated human resources department, a lot of those responsibilities are going to fall on you and your leadership team.

Chances are a lot of the guidance your employees are looking for these days surrounds selecting their health insurance plans during open enrollment. That likely means that you’ve found yourself trying to quickly become knowledgeable about the ins and outs of all things health insurance.

Disability insurance, both short and long-term, have become more and more common these days, but that doesn’t mean there won’t be questions about what they mean — especially from younger employees who are navigating employer health insurance for the first time.

While short and long-term disability are both disability insurances, they differ in a couple of key ways. Here, we’ll go into all things Long-Term Disability Insurance 101 — from what it is to how it works — in order to help you help your employees pick the best insurance for themselves.

What is a long-term disability plan?

Long-term disability insurance is a policy that can replace lost income for workers if they become unable to work for an extended period of time because of an illness or injury.

Long-term disability insurance is a policy that can replace lost income for workers if they become unable to work for an extended period of time because of an illness or injury.

The idea is that just because work might stop doesn’t mean that bills stop, so money has to come from somewhere. Long-term disability insurance can fill that gap specifically for long-term issues (short-term disability, by contrast, covers the inability to work for shorter durations).

What is the difference between short-term and long-term disability?

As the names suggest, the differences in the plans relate to the length of time that they cover.

Of course, specific plans from specific insurance providers differ in the details, so the most important thing you can do is to read the fine print on your specific provider’s policy. The very best place you can go for answers, despite often frustratingly long hold times this time of year, is to your provider itself. So call up that customer service number if you have lingering questions.

That said, long-term disability policies typically cover periods of time measured in years, something like 5, 10, or 20 years. Short-term policies tend to operate on a timeline that’s measured in months and can be triggered by more “routine” events like pregnancy.

Once a qualifying event does take place, long-term insurance will pay out to cover your usual income, typically around 40% to 60% or so of it. This can last anywhere from a couple of years to all the way through retirement depending on your policy (and how much you pay for it). Short-term, on the other hand, will often cover a bit more of your regular salary (think 70% and upwards) but can last for a period of time — more like 3 to 6 months.

Long-term disability policies typically cover periods of time measured in years, something like 5, 10, or 20 years. Short-term policies tend to operate on a timeline that’s measured in months and can be triggered by more “routine” events like pregnancy.

How does long-term disability insurance work?

Again, every individual policy is different, but often the cost of long-term disability insurance is a percentage of your pay, usually between 1% and 3% of a worker’s salary.

The other thing to know is that workers will have to apply for long-term disability insurance. There’s usually a paper or online questionnaire that will cover the basics and ask for some documentation (things like an offer letter or your latest tax return). They’ll often want access to your health records to determine eligibility as well, so there will probably be a release form involved as well. The next application step can sometimes be a call with an insurance representative to help determine final eligibility. Sometimes it involves a medical exam, too.

Once the policy is set, payouts from it will be triggered if or when you become “disabled” according to the policy (in this context, it refers only to your ability to work) under your individual policy’s definitions. Again, the lesson of the day is this: reading the fine print is essential!

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