Insurance 101: What Is Long-Term Disability Insurance?

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Long-term disability insurance is a benefit that helps your employees cover their finances while they’re recovering from a persistent illness or tough injury. Often used with short-term disability insurance, a long-term policy shows your employees you have their back if an accident, sickness or disability prevents them from working.  

So how does long-term disability insurance work, and what does it cover? Here’s a primer on what you need to know.  

How Does Long-Term Disability Insurance Work? 

Long-term disability insurance replaces a portion of your employees’ income if an illness or injury inhibits them from doing their job for an extended period of time. For instance, an employee may miss work due to an onsite accident, or they could incur an injury or illness offsite. Either way, the result is that a serious barrier has occurred that prevents them from performing their day-to-day role and, in order to properly recover, they must miss work.  

In these cases, long-term disability insurance can help your employees cover their bills while they get back on their feet. Long-term disability can also offer your employees peace-of-mind, knowing they can still afford to make ends meet while recuperating.  

What’s the Difference Between Short-Term and Long-Term Disability Insurance? 

As the name suggests, short-term policies are designed to help employees stay afloat following short-term injuries or illnesses. These plans typically provide benefits immediately, whereas long-term disability has a built-in waiting period of a few months. Although employees must wait longer for long-term disability to kick in, their policy will usually cover more of their salary than short-term policies.  

The good news is that you also don’t have to choose between short- or long-term policies. In fact, many employers choose to offer both, helping ensure employees get temporary relief and long-term security.  

What Does Long-Term Disability Insurance Cover?  

When your employees have a qualifying event, they’ll file a claim with their disability insurance company. Once the claim is approved, one of two things will happen. If your employees have short-term disability insurance, then the short-term policy will kick in first. If not, they will have to wait until their long-term policy’s waiting period, or elimination period, ends—usually in 90 days.  

Commonly, under a group plan, long-term disability insurance will replace around 50% to 60% of your employee’s normal salary. The long-term policy can last anywhere from a few months to a few years, with some policies lasting even to a certain age (such as 65). Long-term disability insurance is designed to help employees with persistent illnesses and slow-recovering injuries. That said, the specifics of what is and what is not covered will depend entirely on the terms laid out in your employees’ long-term policies.  

Still, common conditions covered by long-term disability insurance include:  

  • Back pain 

  • Cancer 

  • Coronary artery disease 

  • Heart attacks 

  • Injuries, such as sprains, muscle or ligament strains, fractures, broken bones  

  • Pregnancy issues 

  • Pneumonia 

  • Rheumatism 

  • Scoliosis 

  • Strokes  

Long-term disability insurance can come split into two coverage options:  “own occupation” or “any occupation.”  With “own occupation,” your employees are covered if an injury or illness prevents them from performing the job they currently hold. A recent explainer from Guardian Life notes: 

“If you can’t work in your regular occupation but are willing and able to work in some other capacity, this definition means you can get your full benefit payment even while holding another kind of job. If a surgeon . . . had disability insurance for physicians with this definition, he or she could take a teaching or consulting job and still receive replacement income for the entire benefit period.” 

“Any occupation” works differently. With “any occupation” coverage, your employees have to prove they cannot work any job, not just the one they currently hold. Their insurance company will look at their education and work experience to decide if there’s another job they can reasonably take on. If not, then they will be covered by a long-term disability plan.  

How Much Do Employees Pay For Long-Term Disability Insurance? 

Since long-term disability insurance is offered as an employee benefit, employees usually do not pay to hold a policy. That said, if the disability plan is funded on a pre-tax basis, employees will pay income taxes on their long-term disability payouts.  

Is Long-Term Disability Insurance Required by Law? 

There’s no law that mandates employers to provide long-term disability insurance to employees, though many large and mid-sized companies opt to do so anyway. If your business is in California, Hawaii, New Jersey, New York or Rhode Island, however, you are required to provide short-term disability insurance.  

Should You Provide Long-Term Disability Insurance to Employees? 

Nothing can feel more stressful than worrying about money while you are injured or ill. For that reason, offering long-term disability insurance as an employee benefit is a concrete way to show your staff that you care about their long-term financial health; what’s more, important benefit offerings like long-term disability can drive employee loyalty and retention within your company and boost morale.  

Curious to see if companies like yours are offering student loan repayment benefits? Download Mployer Advisor’s free custom benefit benchmarking report to see how your benefits package compares.
Plus, need a refresher on short-term disability requirements? Right this way.  

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