Many of us do not always recognize the potential danger of
becoming permanently disabled. The U.S. Census says that you have
about a 1 out of 5 chance of becoming disabled for at least some
period of time. The average duration for a long term disability
(LTD) is about a two-and-a-half-year absence from employment.
Long Term Disability is a vital component in a financial plan to
help mitigate that risk. It is also important to understand some
of the basic features of long term disability insurance before
purchasing a policy.
What is Long Term Disability Insurance?
This type of insurance is fairly basic to understand. LTD picks
up where your short-term coverage ends. Short term coverage will
typically cover you for a period of about 3-6 months. If you are
deemed to be long term disabled, most policies will typically
cover replacing up to 50-60% of your prior income, with certain
limitations. While 60% seems like a substantial reduction in
income and insufficient to maintain most people's current
lifestyle, it is certainly better than no income. Benefits, when
approved from a LTD policy, will typically not be paid beyond the
age of 65.
How do you buy Long-Term Disability Insurance?
One of the most common ways is through a group plan with your
employer. In fact a large number of employers provide LTD
insurance for free as benefit for their employees. In such cases,
it may make sense to buy additional supplemental insurance policy
to bring the replacement value of your income closer to 100%. The
cost of LTD insurance as part of a group plan is, like most group
policies, often less expensive than purchasing this coverage
However, there are some serious considerations that you should
think about before buying a policy as part of a group plan. One
such consideration is qualifying for benefits. Assuming that you
are legitimately disabled and file for benefits, this does not
mean the insurance company will approve the claim. Unlike life
insurance where death is not debatable, a disability can be, and
often is, disputed. In an event where you end up in a dispute
over eligibility with an insurance company, this can be a long
exhausting process with an employer-provided plan. The reason is
that group insurance is regulated under the Employee Retirement
Income Savings Act (ERISA). If you feel you are not receiving the
benefits that you are entitled to, you may wish you take legal
action against the insurer. In such an event under a group plan,
this is a matter of federal law. According to ERISA, before there
can be a federal lawsuit you must first "
". This means you have 180 days to appeal a denial and then the
insurance company can wait another 90 days to respond. While this
process plays out, you are potentially without income as you're
unable to work. Furthermore under ERISA, the insurance
company has what is known as
discretion to administer their own policies
. This means you must be able to demonstrate that the insurer
abused their discretion. Most attorneys with expertise in the
field of disability claims will tell you that this is a fairly
tough standard to meet.
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