The principle of long-term disability insurance is simple enough–you pay premiums and if you become disabled and are no longer able to work, you get regular payments to make up some of the lost income for a specified time.
As with life insurance, it’s often a smart way to make sure you and your family (or financial dependents) are protected if the worst happens.
You do need to pay attention to the details with long-term disability insurance, however, as policies have several key options. For example, you’ll need to check how long you have to be disabled before any payout starts, and for how long the payments will continue. Some long-term disability insurance policies pay for a fixed period only (or until you reach retirement age if that comes first), while others guarantee to pay out until you reach retirement age, regardless of how long that is.
You’ll also need to decide on a payout level. Generally, long-term disability insurance policies pay a maximum of around 50 to 70 percent of whatever your pre-tax salary is when you become disabled. When you take out the policy, you can sometimes choose a lower payout level, which will reduce your premiums.
Your employer may cover you with a long-term disability insurance policy or give you access to buy one at a discount. Even if this is the case, don’t automatically rule out getting your own long-term disability insurance policy instead, or in addition to, your company’s policy.
The employer’s policy might not offer a payout level that meets your needs, for example. Also, payments you receive from an employer policy may be taxed differently to those you receive from a long-term disability insurance policy you buy yourself.
We understand the details of long-term disability insurance and will be happy to walk you through it.