Long-Term Disability Insurance (LTD)
Long-term disability insurance protects employees against the financial consequences of a disability that prevents them from working for an extended period. While short-term disability covers temporary absences, long-term disability is designed for disabilities that persist beyond the short-term benefit period and that may continue for years — or through the employee's retirement age. The financial impact of a long-term disability is among the most serious risks a working person faces, and LTD insurance is one of the most important — and most frequently overlooked — components of a comprehensive employee benefit program.
How Long-Term Disability Works
LTD policies replace a percentage of an employee's pre-disability income — commonly 60% — after an elimination period has been satisfied. Key elements of LTD plan design include:
- Elimination period — the waiting period between the onset of disability and the start of LTD benefits, typically 90 or 180 days. The elimination period is usually designed to coincide with the end of the short-term disability benefit period so that the two coverages work together without gaps.
- Benefit period — the maximum duration for which LTD benefits are paid. Common options include benefits payable to age 65, to Social Security normal retirement age, or for a defined number of years (such as 5 or 10 years). To-age-65 or to-retirement-age benefit periods provide the most complete protection for younger employees.
- Benefit amount — typically 60% of pre-disability monthly earnings, subject to a maximum monthly benefit. Some plans allow employees to purchase additional coverage above the employer-paid base through a buy-up option.
Own Occupation vs. Any Occupation Definitions
The definition of disability in an LTD policy significantly affects when benefits are payable and for how long. An "own occupation" definition considers the employee disabled if they cannot perform the duties of their specific occupation, even if they are capable of working in another field. An "any occupation" definition requires that the employee be unable to perform any gainful occupation for which they are reasonably suited by education, training, or experience. Many policies use an own-occupation definition for the first 24 months of disability and then transition to an any-occupation standard.
Coordination with Social Security and Other Benefits
LTD benefits are typically reduced by income received from other sources, including Social Security Disability Insurance (SSDI), workers' compensation, and state disability programs. Most LTD carriers provide assistance with SSDI applications because an approved SSDI benefit offsets the carrier's cost of claims.
Industry Considerations
LTD is an essential benefit for employees at every income level and in every industry, but the appropriate plan design varies considerably. Highly compensated employees may need supplemental individual disability coverage in addition to group LTD, because group plans often cap the monthly benefit at a level that represents a smaller percentage of income for higher earners. Physically demanding industries may see higher claim rates, which affects pricing and plan design. Etowah Insurance Group can help design a long-term disability program that provides genuine income protection for your workforce and fits within your overall benefits budget.
