Long-Term Disability Insurance Guide
What Is Long-Term Disability (LTD) Insurance?
Long-Term Disability (LTD) insurance is designed to replace a portion of your income if you become unable to work due to a serious illness or injury. Unlike short-term disability insurance, which typically covers disabilities lasting a few months, LTD insurance provides benefits for several years or until retirement, depending on the policy.
Why Is LTD Insurance Important?
A disability can significantly impact your ability to earn a living. According to the Social Security Administration, over 1 in 4 of today’s 20-year-olds will experience a disability before retirement. LTD insurance ensures financial stability by replacing 50% to 70% of your pre-disability income. Without coverage, many professionals—especially high-income earners like physicians, dentists, attorneys, and executives—may struggle to cover expenses while recovering.
How LTD Insurance Works
Elimination Period (Waiting Period) – The time between when a disability occurs and when benefits begin. Typical waiting periods: 90, 180, or 365 days.
Benefit Period – The length of time benefits are paid. Common options: 5 years, 10 years, or until age 65/67.
Monthly Benefit Amount – Usually 50% to 70% of your pre-disability income. May be tax-free if premiums are paid with after-tax dollars.
Types of LTD Insurance
• Group LTD Insurance (Employer-Sponsored) – Typically covers 50-60% of salary, but coverage is often subject to a monthly benefit cap, usually between $5,000 and $15,000 per month. This means high-income earners may receive far less than 60% of their actual salary, making individual LTD coverage essential to fully protect their income. Group LTD benefits are also taxable if employer-paid and not portable (coverage ends if you leave the company).
• Individual LTD Insurance – Purchased privately, independent of employer coverage. Can be customized with riders for better protection. Portable (stays with you even if you change jobs).
• Guaranteed Standard Issue (GSI) LTD Insurance – Offered to specific groups (e.g., physicians, highly compensated executives) without medical underwriting. Ideal for professionals who may have pre-existing conditions.
• Business Overhead Expense (BOE) Disability Insurance – Covers fixed business expenses (e.g., rent, salaries, utilities) if a business owner becomes disabled. Does not replace personal income but ensures the business stays operational.
• Key Person Disability Insurance – Protects businesses by providing benefits if a key employee (e.g., an executive or top-performing salesperson) becomes disabled and can no longer contribute to the company’s success.
Key Features to Look For in an LTD Policy
• True Own-Occupation Definition – Ensures you receive benefits if you can’t perform the specific duties of your own occupation, even if you’re able to work in another capacity. This is especially important for physicians, dentists, attorneys, and specialists who may still be able to work in a different field but can no longer perform the duties of their trained profession.
• Residual/Partial Disability Benefits – Provides partial benefits if you can work in a limited capacity.
• Cost-of-Living Adjustment (COLA) Rider – Adjusts benefits to keep up with inflation.
• Future Purchase Option (FPO) Rider – Allows you to increase your coverage without requiring medical underwriting, as your income grows.
• Non-Cancelable & Guaranteed Renewable – Ensures your policy can’t be canceled or have rates increased.
Who Needs LTD Insurance?
• Physicians & Dentists (high-income, physically demanding jobs)
• Attorneys & Executives (dependence on cognitive function)
• Business Owners & Entrepreneurs (no employer-sponsored benefits)
• Young Professionals (lock in lower rates when healthy)
Cost of Long-Term Disability Insurance
• Typically 1-3% of annual income.
• Factors Affecting Cost:
• Age & Health
• Occupation
• Benefit Period & Elimination Period
• Additional Riders
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Long-term disability insurance is a critical safety net for anyone who relies on their income. Whether you're a high-earning physician, a business owner, or a young professional, securing true own occupation LTD coverage can protect your financial future in case of an unexpected disability. Want to explore your options?
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312 Insurance
312 Insurance Group
3601 Algonquin Rd, #605, Rolling Meadows IL 60008
(847) 665-1952
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