There’s no way of knowing what will happen in the future. It’s possible that an illness or accident can debilitate us to where we can’t work. Unexpected health issues can leave you unable to work for months, or even years, at a time. According to the Social Security Administration, over 1 in 4 current 20-year-olds will become disabled before reaching retirement age. Roughly 8 million U.S. adults have some disability that limits or prevents them from working. Long-term disability insurance can provide many individuals and families with a financial safety net. If you suddenly can’t work for an extended period of time because of an illness or injury, you can use long-term disability insurance to pay a portion of your income. If you’re wondering if long-term disability insurance is worth it, read on to find out.
What is Long-term Disability Insurance and What Does It Cover?
Long-term disability insurance is designed to protect you financially if you become unable to work because of an unexpected illness, injury, or accident. Long-term disability insurance doesn’t cover work-related accidents or injuries like workers’ compensation, but it covers many severe illnesses or injuries.
Here’s a list of some events long-term disability insurance could help you through:
- Mental health challenges
- Broken bones
- Pregnancy
- Cancer
- Hernias
- Musculoskeletal disorders
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How Does Long-term Disability Insurance Work?
It usually works like any other type of insurance. You file a claim if you become disabled and start making recurring premium payments once you’re approved. You’ll have to include evidence of your disabling condition, such as physician’s notes or medical records. There is usually a waiting period of 30 to 90 days between the moment you’re diagnosed and when you receive your first benefit check, ensuring that your disability is long-term instead of short-term. The amount you receive and how long the payments last will depend on your individual policy. The benefit amount is usually a percentage of your income. Long-term disability policies generally replace 50% to 80% of your income.
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What Can You Use Long-term Disability Insurance For?
Long-term disability insurance provides an extra financial cushion in the event of a long-term disability. You’ll be able to use your benefit payment for:
- Utility or grocery bills
- Rent or mortgage payments
- Additional medical expenses
- Clothing or other items
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How Long Can You Stay on Long-term Disability?
According to Policygenius, a five-year benefit is usually enough to cover most people, but most insurance policies can pay out for 2 to 10 years, or even until retirement. Your premiums will be higher for larger benefit payments over a longer period of time. You’re likely not going to have to pay benefits back because they are treated as tax-free income.
How Much Does Long-term Disability Insurance Cost?
As with most insurance policies, the younger and healthier you are, the cheaper your policy will be. Annual premiums usually equal 1% to 4% of your annual salary. Insurance companies base long-term disability coverage on the risk of applicants, as well as on the length and amount of the benefits.
Expect your rates to be based on:
- Age
- Benefit amount
- Benefit period
- Health and smoking history
- Gender
- Occupation
- State of residence
- Policy riders
Policy riders will often come at an additional cost, but not always.
Here’s a list of riders that might be worth it:
- Future increase option rider – Best if you expect income increases after your policy has been issued. This option will let you increase your coverage amount in the future.
- Student loan rider – Best for people who invested heavily in their education. This option will cover some or all of your student loan payments during your disability.
- Non-cancelable feature – Best for older people. This option makes it unlikely that the insurance provider will reprice your policy.
- Guaranteed renewable rider – Your insurance provider can’t cancel your policy for as long as you pay your premiums.
Here’s a list of the top long-term disability insurance providers of 2022:
- Northwestern Mutual – Best overall
- Guardian Life – Best for customization
- Assurity – Best for risky jobs
- MassMutual – Best service
- Mutual of Omaha – Best for coverage options
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Pros and Cons of Long-term Disability Insurance
| Pros | Cons |
| The insurance will pay you a portion of your income if you become disabled | Coverage costs depend on several factors like age, health, and your occupation’s danger level |
| You can use benefit payments for daily needs, medical bills, etc. | Some policies come with exclusions that don’t cover pre-existing conditions |
| Tax-free benefits if you pay your policy with after-tax dollars | Only available for people who have an income |
| You almost never have to pay back the benefits you get | Long-term disability insurance payments are made for a certain period of time |
| Payments made regardless of the cause of the disability or whether it happened in the workplace or outside | Benefits usually kick in after a certain waiting period |
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So, Is Long-term Disability Insurance Really Worth It?
If you don’t have to worry about making ends meet in the event of a long-term disability, then it’s probably not worth it. People tend to choose short-term disability insurance over long-term because it costs less money. Long-term disability insurance premiums can be quite expensive. However, the worst thing you can do is to assume that “it won’t happen to me.” Serious accidents or injuries can happen at any time. It might be worth securing long-term disability insurance at a younger age for a lower rate.
Here are some reasons investing in long-term disability insurance can be worth it:
- You don’t have someone else’s income to fall back on
- You are your family’s primary source of income
- You are young and healthy now so your premiums will be cheaper
- You can’t depend on Social Disability or Workers’ Compensation Insurance
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Long-term Disability Insurance Alternatives
Alternatives could give you some of the coverage you need and they include:
- Short-term disability insurance – Best used as a complement to long-term disability insurance. It doesn’t last as long, but it can give you benefits during long-term disability insurance’s waiting period.
- Social Security disability – Only pays disabled workers who meet certain criteria. Benefit payments are modest.
- Employer-provided long-term disability insurance – Some employers offer group long-term disability insurance for relatively affordable prices. Coverage amounts are limited.
- Workers’ compensation – Only pays benefits for injuries that occur on the job.