Long-Term Disability Insurance 

While no one likes to think about the possibility that he or she might one day experience a long-term disability, it’s more likely to happen than you might think.

According to the U.S. Social Security Administration, an estimated one in four of today’s 20-year-olds¹  will become disabled before retirement age.   

The good news is that long-term disability insurance (technically known as disability income insurance) can help you bridge this gap by replacing a portion of your lost wages.   

Below, we look at the types of long-term disability insurance, explain how it works and how it’s different from short-term disability insurance, and answer other frequent questions about disability coverage.   

What is long-term disability insurance?  

Disability insurance is a type of insurance designed to replace a portion of your earnings when you get sick or hurt and can’t perform one or more of your regular job duties or spend as much time at work.  

As the name suggests, long-term disability insurance is designed to replace a portion of your earnings when you have a disability that lasts for a long time, usually for more than three to six months.   

Short-term vs. long-term disability insurance  

When you’re looking to protect your income (and lifestyle) with disability insurance, there are two key types you’ll want to consider: short-term disability insurance and long-term disability insurance. While they are similar in that they help to make up your salary if you’re sick or injured and can’t work, they are different in key ways.  

Short-term disability insurance: 

• Usually kicks in shortly after a qualifying injury or illness.  

• Usually lasts for three to six months, depending on your policy.  

 Long-term disability insurance:  

• Usually kicks in at least 90 days after a qualifying injury or illness, depending on your policy.  

• Can last for a set amount of time or until you reach a certain age, typically near the age you would have retired.

How does long-term disability insurance work?  

Long-term disability insurance is often offered by employers as part of a group long-term disability or “LTD” plan. However, many work plans only cover about half your salary, and benefits are typically taxable. It’s also possible — and often wise — to purchase an individual (supplemental) policy. Doing so will provide you with additional coverage (usually with tax-free benefits).   

When you get an individual disability income insurance policy, you will make premium payments. Then if you become sick or hurt and can’t work for an extended time, you submit a claim. If your claim is approved once the elimination period has ended (usually 90 days after a qualifying injury or illness), you will begin receiving payments according to your policy.  

Long-term disability benefits explained  

The benefit refers to the size of the payments that you will receive if you become disabled due to a qualifying injury or illness. Generally, it’s a good idea to get enough coverage to replace as much of your income as possible.   

Another key consideration with disability income protection is whether your policy will pay based on a condition that prevents you from working in any job or one that prevents you from working only in your own occupation. The most robust, comprehensive coverage will protect the income you earn specifically from the duties you perform at the time you become disabled. Whether you are a physician, dentist, attorney or engineer, as your occupation and significant duties evolve over time, this type of policy follows you throughout any career changes into the future. 

What qualifies as a long-term disability?  

When most people think of the causes of long-term disability, they tend to think of accidents that might leave them with pain that makes it difficult to work. While it’s true that accidents can cause disability, 75 percent of disabilities are caused by illness or medical conditions.²

There are thousands of medical impairments that could potentially lead to long-term disability, including cancer, various arthritic conditions, multiple sclerosis, ALS and Parkinson’s. 

How long does long-term disability last?  

How long your long-term disability insurance lasts will depend on the coverage that you purchase.  

Your insurance carrier will have several different terms you can choose from that will indicate how long your plan will pay a benefit if you become disabled. This is known as the maximum benefit period. Some policies will pay for a set time frame, like five or 10 years. Others will pay until you reach a certain age, typically near the age when you would have retired.  

By comparison, short-term disability will typically last only between three and six months, depending on the specifics of your policy.   

Choosing the right long-term disability insurance  

Long-term disability insurance plays an important role in a financial plan because income is a critical part of funding the goals in your financial plan. Long-term disability insurance helps you to continue receiving income if you should ever become disabled. It can help you avoid tapping into other assets — such as retirement or other investment accounts — giving those assets the time they need to compound and grow for your future.  

Not sure how much coverage you need? This disability insurance calculator can help you settle on the coverage level that is right for you.  

To be used with form MN 992-STD, MN 992-LTD, MN 1096 SGSTD, MN 1096 SGLTD, ICC16.TT.DI.IIB.(0916), ICC16.TT.DI.FIB.(0916), ICC16.TT.DI.CAT.(0916), ICC16.TT.NCDI.(0916), ICC16.TT.GRDI.(0916), ICC16.TT.DI.PDB.(0916), ICC16.TT.DI.PDBO.(0916) or state equivalent. Not all contracts and optional benefits are available in all states. Disability insurance policies contain some features and benefits that may not be available in all states. The ability to perform the substantial and material duties of your occupation is only one of the factors that determine eligibility for disability benefits. These policies also contain exclusions, limitations and reduction-of-benefits provisions. Eligibility for disability income insurance and additional policy benefits and qualification for benefits is determined on a case-by-case basis. For costs and complete details of coverage, contact your Northwestern Mutual financial representative or your group plan administrator.   

Northwestern Mutual is the marketing name for The Northwestern Mutual Life Insurance Company, Milwaukee, WI (NM) (life insurance, disability insurance, annuities, and life insurance with long-term care benefits). 

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