Things to Consider When Purchasing Long Term Disability Insurance

Purchasing long term disability insurance is all a question of cost.  How much are the premiums?  How much more does it cost to get good coverage?  Don’t factor in “how likely am I to need it?” because we can never really know and we all fool ourselves by thinking we won’t need it.

Here are a few things to think about when you buy coverage:

  • Group Plan vs. Private Plan – if you can buy a private plan from an insurance agent (as opposed to something through a professional group), it is so much better because then WA state law applies and there is a huge hammer for policyholders against the insurance company – and a much bigger incentive for the insurer to pay the claim.  If you have a private policy, it is less likely that you will have to fight as hard for your benefits.  However, a private plan is much more expensive.
  • Elimination Period – this is the length of time you have to wait until your benefits start paying.  This is a place where you can save yourself some money.  Think of it like an insurance deductible on your car insurance.  How much money are you willing to self-fund before your benefits kick in?  Most Elimination Periods are 90 days, but you can get 30 or 60, if you like, it just costs more.  If you can afford to do a six month Elimination Period, it would save you money.
  • “Own Occupation” vs. “Any Occupation” – Most insurance policies say that you have to be disabled from your “own occupation” for the first two years and then they take another look at it and say that you have to be disabled from “Any Occupation” thereafter in order to continue receiving benefits.  This “Any Occupation” standard is much harder to meet, especially if you a professional and/or intensely cognitive job.  The “Any Occupation” standard is similar to what Social Security requires.  Most doctors have an “Own Occupation” standard which means they could be disabled from working as a doctor, but still be able to work at another job and get disability benefits.
  • Social Security Disability – Most insurance policies (especially group policies) require that you apply for SSD and appeal (when/if you are denied) – and that you have an “offset” for those benefits from your LTD benefits.   This means that you get money from 2 different sources, but you only get about 65% of your regular salary – you don’t get to “double dip” and get the full amount of both benefits.  Some older policies do not have an SSD requirement.  These policyholders don’t have to apply for SSD and, if they do, there is no offset, so they get the full amount of both!
  • Partial vs. Full – I don’t trust insurance companies at all.  My fear is always that if you apply for Partial benefits you are somehow hurting yourself either by setting yourself up for lower long-term benefits in the event you ultimately have to apply for long-term benefits and/or by signaling to the insurance company that you really aren’t that disabled because you can work to some extent – I fear this would just cause the insurance company to try to prove that you aren’t disabled enough to qualify for any benefits.  If they are charging more for a policy that includes partial and full, I think I’d save the money and just get a full and then spend that money to buy a private policy, an “own occupation” policy or something without a SSD offset.