Long-Term Disability Insurance (LTD) helps replace some of your income when you can’t work at all or can only work part-time because of a disability. Private companies that provide LTD policies have different enrollment requirements and benefits. LTD insurers publish summaries of the particular plans they offer.

How to Get LTD Insurance

Some people have LTD insurance through an employer, union, or other professional organization. This type of policy is known as group coverage. You can also purchase individual coverage directly from an insurance company/agent. If you have group coverage and leave your employer or professional association, you may be able to convert your group policy into an individual one.

Your Medical History and Pre-Existing Conditions

LTD providers consider your medical history when you sign up. Depending on which coverage you are getting, Individual Coverage or Group Coverage, LTD providers will look at your medical history differently.

• Individual Coverage: The insurance company decides what conditions might cause a disability in the future. These are called “potentially disabling conditions”. Some LTD insurers will not approve you for individual coverage if you have had treatment for a potentially disabling condition within a certain period of time. Treatment includes advice from a doctor and medication. The review of your medical history is known as medical underwriting.
• Group Coverage: If you have had treatment for something within the past 3 to 6 months, you have a Pre-Existing Condition. LTD providers will still offer you Group Coverage if you have a pre-existing condition, however, there will be a set period of time when they won’t pay a benefit if this condition causes you to miss work. The period of time is generally 12 to 24 months and is called the pre-existing condition exclusionary period.

When You Will Receive Your First LTD Check

Most LTD plans have a service wait, which is a set period of time before coverage actually begins. If you have a pre-existing condition exclusionary period, it starts after the service wait ends. When the service wait and exclusionary period are over, you are eligible for a benefit.

The date when this happens is called the coverage effective date.

Once you apply for a benefit, there is usually a waiting period (also called an “elimination period”) before you can begin to receive benefits. This waiting period generally lasts between 30 and 180 days. Shorter or longer waiting periods are available under some LTD policies. Usually, the longer the waiting period, the lower the premium will be.

The Benefit

Each policy has a different way of determining how much money you will receive. Some send you a set dollar amount. Other policies might take your pre-tax wages and give you a certain percentage of those wages. The pre-tax wages that insurance companies use to determine your benefit may include bonuses and other salary from the employer.

Most policies will subtract any benefit you receive from other programs like Workers’ Compensation, Social Security Disability Insurance, State Disability Insurance, or other programs that are designed to replace income.

Benefit Period

Benefit period defines how long LTD benefits will be paid. The most frequently offered periods are two years, five years or until you retire.

Types of LTD insurance

There are two major types of individual long-term disability insurance:

1. Non-cancelable: under a non-cancelable policy, you have the extra security that premiums can never be raised above those shown in the policy. Also, the policy can not be cancelled as long as the required premiums are paid on time.
2. Guaranteed renewable: with a guaranteed renewable policy, the premiums can be raised, but only if the change affects an entire class of policyholders. For this reason, initial premiums for guaranteed renewable policies can be less expensive than non-cancelable policies.

Other less expensive policies with limited, if any, premium or renewability guarantees are also sometimes available.

Definition of Disability

LTD providers use two common definitions of “disability”:

1. Own Occupation or “Own Occ”: to be considered disabled you must be unable to perform your own occupation. Generally, you will get a benefit check for between two and five years.
2. Any Occupation or “Any Occ”: to be considered disabled you must be unable to work in any occupation. Generally, you will get a benefit check until you can go back to work or until the policy ends.

Part-Time Work

You may also be able to return to work part-time and still receive part of your LTD benefit check. Make sure to check the details of your plan before returning to work part-time.

Exclusions

Many policies will not cover disabilities caused by drug abuse, alcoholism, attempted suicide, war, or attempts to commit a crime.

John's Story

John is unemployed. In January 2023, he goes to the doctor because his back is hurting him. The doctor prescribes some painkillers and sends him home to rest. In February, John gets a job and signs up for Long-Term Disability Insurance (LTD).

A month later, he gets a letter from the insurance company about his LTD. It explains that he will have a 2 month service period. This means that he will have LTD coverage starting April 1, 2023, two months after the date he was hired. So, if John is injured between February and April, he will NOT be able to apply for LTD benefits. The LTD policy uses the “Own Occ” definition of “disability”, which means that John has to be unable to work in his own occupation to be defined as disabled.

The letter goes on to explain that his back injury is a pre-existing condition, and that he will have a 1 year exclusionary period. The exclusionary period begins on the same day of his coverage, April 1, 2023. If he becomes disabled due to his back injury between April 1, 2023 and April 1, 2024, he will NOT be able to collect LTD benefits.

In May of 2024, John hurts his back and can no longer go to work. Since the waiting period and exclusionary period are over, John can begin to receive LTD benefits. He knows that it may take awhile to get his first LTD check, so he immediately contacts his Human Resources manager. The manager tells him that there’s a 60 day elimination period from the date of disability before his benefits begin. John will start receiving his benefits on July 1, 2024.

John was making $2,000 a month before he hurt his back again. His policy pays 50% of pre-disability wages for up to five years. So, John will receive $1000 a month from LTD until he is no longer considered disabled or 5 years pass, whichever is shorter.

Different plans may have different definitions of disability, waiting periods, exclusionary periods, and benfit calculations.