How is long-term disability insurance different from health insurance?
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If you have health insurance, do you also have long term disability insurance or LTD? Both can help protect your income if you suffer a serious illness or injury, but they are very distinct forms of coverage that help protect you in different ways. That's why it's important to know what each covers, how they can work together, and — most importantly — whether you should consider having both. Disability insurance does NOT provide basic hospital, basic medical or major medical insurance. This article will help explain:
The basics of health insurance and long-term disability insurance
How the two coverages work differently and together
Whether adding LTD makes sense for you
What health insurance covers
As of 2023, approximately 93% of the U.S. non-elderly population was covered by some sort of health insurance,1 so there's a good chance you have this essential form of protection. While there are many different kinds of plans with varying coverage levels, health insurance typically covers a significant portion of the cost of essential medical care and treatment — from routine checkups to vaccinations, tests, hospital stays, surgery and medications.
Virtually all health insurance plans — including Medicare — require the patient to cover a portion of their medical bills. Depending on your plan, you may be responsible for deductibles, copays or coinsurance, which can add several thousand dollars to your yearly costs. In addition, not every plan covers every procedure, test, provider, or medication.
Despite these issues, there is no doubt that a good health insurance plan helps to relieve much of the financial burden associated with serious illness or injury. So in a sense, it protects your ability to access and pay for medical care. But if the same health problem keeps you from working and earning income for an extended period, health insurance doesn’t provide funds to help cover rent, buy groceries, and pay your bills. That’s where long-term disability insurance can help.
Long-term disability insurance basics
Although disability insurance and health insurance are related in the sense that both can pay benefits when someone suffers illness or injury, they serve very different purposes. Health insurance is designed to help cover your medical bills, and benefit payments are almost always sent directly to your doctor or health care facility. Disability insurance is designed to provide income replacement so you can pay your bills.. There are three basic types of disability insurance available:
Short-term disability insurance (STD)
Many employers offer short-term disability insurance as an employer-paid or voluntary (employee-paid) benefit. If you’re unable to work due to covered illness or injury, STD policies typically replace 40%-70% of your income for between 13 and 26 weeks (although benefit payments and coverage periods vary from one policy to the next). And while some STD policies may pay benefits for up to one year, this type of disability coverage does not offer long-lasting financial protection for disabilities that prevent you from working for an extended period. If your claim is approved, you’ll receive benefits until the end of the benefit period outlined in your policy. The money is paid to you directly, and there are no limitations on how it can be spent.
Social Security Disability Insurance (SSDI)
If you have been paying Social Security taxes for at least ten years, you are likely covered by SSDI, which can pay monthly benefits for several years – even until retirement age if illness or injury prevents you from doing any work of any kind. But it's important to know that SSDI has stringent eligibility requirements, a complex application process, a high rate of claims denial – and relatively low monthly benefits: in 2023, the average monthly benefit was just $1,489 per month.2 If you don’t think that’s enough to help maintain your lifestyle, you can understand why many people choose to rely on long-term disability coverage from a private insurance company.
Long-term disability insurance (LTD)
A long term disability insurance policy can provide several years’ worth of income replacement should you be unable to work for an extended period — or permanently — due to covered illness or injury. Every policy is different, but a typical elimination period is usually 3 months. Benefit periods also vary by policy. Your benefit period can last 5, 10 or 20 years, or until you reach retirement, depending on the terms of your policy, so consider how many working years are ahead of you while comparing policies. Here are some key facts to know:
It can replace up to 60%-80% of your regular income3- LTD can replace a substantial portion of your regular income, helping you cover expenses and avoid financial hardship while you cannot work.
Pays benefits until you return to work- Most LTD policies pay disability benefits for at least two years or until you are medically cleared to return to work.4 Some policies will have a longer maximum benefit period — five years, ten years, or through retirement age. However, the longer payments last, typically the costlier the policy.
Covers a wide range of illnesses and injuries- While specifics vary from one provider to the next, LTD policies typically cover a wide range of injuries and illnesses that can prevent you from earning an income — whether sustained at or outside of work. Among the most common covered conditions are fractures and sprains, musculoskeletal injuries and back pain, heart attack, stroke, coronary artery disease, scoliosis, pneumonia, rheumatism, and complications of pregnancy.
There’s an elimination period until benefits start - When you put in a disability claim, there's waiting period from the time the illness or injury started until benefit payments start. It could be as short as 90 days, the elimination period in most standard policies, or as long as a year.5 Most LTD policies don't begin paying benefits until any short-term disability (STD) benefits have run out. However, the longer you choose to wait for benefits, the less you'll pay for coverage.
Each LTD provider offers different coverage terms, and contracts are usually tailored to each policyholders needs in terms of benefit amounts, waiting periods, the specific definition of disability, and more.
How health insurance and long-term disability insurance work together
Health insurance is essential because it helps you pay for and access needed medical care. But how will you pay for health insurance premiums, deductibles, copays, and other out–of–pocket costs if your medical condition keeps you from working and earning a paycheck and benefits?
If you have long-term disability insurance to replace a portion of your income, you’ll likely be in a much better position to handle this ongoing expenses — as well as all your other household bills — until you’re ready to return to work.
Should you consider long-term disability insurance?
The short answer is that anybody who depends on a paycheck to cover their living expenses and support loved ones should consider long-term disability coverage to protect their income. On the other hand, if you have other family members you can rely on for support, or have enough assets saved to pay your expenses if you're unable to work, then it may not be as essential to your needs.
If the protection of long term disability coverage appeals to you, and you’d like to learn more about the options available, we can help. A Guardian financial professional will listen to your needs and can help tailor a policy to your specific needs and budget.