Long-term disability insurance replaces 60 to 80% of income when someone can’t work due to illness or injury, typically kicking in after six months and lasting until retirement age. It covers essential expenses like mortgages and groceries. The catch? Pre-existing conditions are usually excluded, and government benefits can reduce payouts. About half of American workers have access through employers, leaving the rest vulnerable to potential financial catastrophe. Those relying on a paycheck should understand how these policies work, what they cover, and whether the gaps in coverage leave them exposed.
Design Highlights
- Long-term disability insurance is critical if you depend on your paycheck, as it replaces 60-80% of income during extended illness.
- Coverage bridges financial gaps between losing work ability and retirement, potentially lasting decades for serious conditions.
- Without adequate coverage, inability to work creates potential financial catastrophe affecting mortgage payments, bills, and essential expenses.
- Government programs like Social Security disability exist but may reduce insurance payouts and have strict eligibility requirements.
- Individual risk factors including occupation type, health history, and existing coverage determine whether additional insurance is necessary.
What happens when someone can’t work for months—or years? That’s where long-term disability insurance comes in. It replaces income when someone becomes too sick or injured to do their job. Typically, it covers 60 to 80% of pre-disability salary. Not everything, but enough to keep the lights on.
The coverage kicks in after short-term disability ends—usually around six months. Short-term disability handles the initial period, maybe up to a year. Long-term disability picks up where that leaves off. These policies can last until retirement age, depending on the terms. That’s potentially decades of income replacement.
Long-term disability bridges the gap from short-term coverage through retirement—potentially decades of income protection.
Qualifying isn’t automatic. The disability must be expected to last at least 12 continuous months or result in death. No quick recoveries here. Common qualifying conditions include neurological disorders like epilepsy or Parkinson’s, cardiovascular diseases, vision or hearing loss, depression, anxiety, and chronic pain. Both physical and mental health conditions count. But pre-existing conditions? Usually excluded. Obviously.
Here’s where it gets tricky. The definition of disability varies by policy. Some pay benefits if someone can’t perform their own occupation initially, then switch to any occupation after a period. That’s a significant difference. A surgeon who loses fine motor control might still be able to work a desk job—and suddenly, benefits stop.
Benefits pay directly to the insured person. They’re meant to maintain living standards during the inability to work. The funds can go toward essential expenses like mortgage, bills, and groceries. But there’s paperwork. Regular proof of disability is typically required to keep the benefits flowing. Medical updates, documentation, the whole bureaucratic dance.
Employer-provided long-term disability exists, but many people purchase individual policies as voluntary benefits. Premiums vary based on occupation risk and health history. Makes sense—riskier jobs mean higher premiums. The benefit payouts are generally intended to replace income on an after-tax basis, though tax treatment differs by policy. A claims administrator, typically an external firm, evaluates and processes disability claims to determine eligibility under the plan.
There are offsets. If someone qualifies for Social Security disability or workers’ compensation, those payments might reduce the insurance benefit amount. The insurance company isn’t paying full benefits on top of government programs. Some policies throw in extras like lump-sum payments or family care benefits.
Exclusions matter. Self-inflicted injuries and injuries from illegal activities won’t be covered. Neither will those pre-existing conditions mentioned earlier. Evidence of insurability—medical underwriting—may be required when enrolling, especially for expanded coverage.
Long-term disability insurance bridges the gap between losing the ability to work and reaching retirement. For anyone depending on a paycheck, that gap could mean financial catastrophe. Policies may include an elimination period before benefits begin, functioning like a deductible that determines how long someone must wait after disability onset.
Frequently Asked Questions
Can I Purchase Long-Term Disability Insurance if I’m Self-Employed?
Yes, self-employed individuals can absolutely purchase long-term disability insurance through private insurers. No employees required—sole proprietors and independent contractors qualify.
The catch? Insurers want proof of income through tax returns or profit/loss statements. Most demand consistent business profits, and some won’t even consider applicants unless they’ve been self-employed for at least two years. Medical underwriting is standard.
Benefits typically replace 40% to 65% of monthly income, with premiums running 1% to 3% of annual earnings.
How Much Does Long-Term Disability Insurance Typically Cost per Month?
Long-term disability insurance typically runs 1% to 3% of annual salary per year.
Break that down monthly? Someone earning $75,000 pays $63 to $188.
A $100,000 salary means $83 to $250 per month.
Make $150,000? That’s $125 to $375.
The average sits around $183 monthly, or $2,200 annually.
High earners can shell out $165 to $885 depending on their job and coverage choices.
Age, health, and occupation risk all mess with the final price tag.
Will My Pre-Existing Medical Conditions Be Covered Under the Policy?
Pre-existing conditions? Usually not covered—at least not right away.
Most LTD policies look back 3-6 months before coverage starts, checking for any treatment or diagnosis.
Then they slap on a 12-24 month exclusion period where those conditions won’t be covered.
After that? Maybe. Employer plans often cover them eventually.
Individual policies? Not so much.
Full disclosure matters here—hiding conditions can torch the entire policy later.
Different conditions, different rules.
Can I Have Both Employer-Provided and Individual Disability Insurance Coverage?
Yes, someone can absolutely have both employer-provided and individual disability insurance at the same time. There’s no rule against it.
The employer coverage acts like a foundation, and the individual policy fills in the gaps—maybe covering that missing 30-50% of income the group plan doesn’t replace.
The individual policy also sticks around if someone gets fired or quits, which employer coverage won’t do.
It’s actually a pretty smart move for people wanting thorough protection.
What’s the Difference Between Short-Term and Long-Term Disability Insurance?
Short-term disability kicks in fast—usually after 7 to 30 days—and covers temporary setbacks like surgery or pregnancy for up to six months, maybe a year.
Pays weekly, replaces 40% to 70% of income.
Long-term disability? That’s the heavy hitter for serious, lasting disabilities. Longer wait times—often 90 days—but coverage stretches years, sometimes until retirement.
Pays monthly, typically 50% to 70% of income.
Different timelines, different purposes. Both cost 1% to 3% of salary.
