Long-term disability (LTD)
Why It Matters
Long-term disability insurance provides partial income replacement when a serious illness or injury prevents you from working for an extended period. Understanding how LTD works helps clarify how income protection continues after short-term disability benefits end.
Understanding Long-Term Disability Insurance: A Practical Guide
Long-term disability (LTD) insurance is designed to protect income during extended or permanent medical work interruptions. While short-term disability addresses brief recovery periods, LTD becomes critical when a condition lasts months, years, or potentially for the remainder of a working career.
This guide explains how LTD works, how it differs from short-term disability, and where coverage limitations commonly arise.
What Is Long-Term Disability Insurance?
Long-term disability insurance provides ongoing income replacement when you are unable to work due to a qualifying illness or injury beyond the short-term disability period. Benefits are typically paid monthly and may last for several years or until a specified age.
LTD replaces a portion of income, not full earnings.
What Problem Does Long-Term Disability Insurance Solve?
LTD insurance addresses the risk of prolonged loss of earning ability, which may result from:
- Chronic illness
- Severe injury
- Degenerative conditions
- Neurological disorders
- Mental health conditions (subject to limitations)
Without LTD coverage, extended income loss often forces reliance on savings, family support, or public assistance.
Who Typically Needs Long-Term Disability Insurance?
Long-term disability insurance is especially relevant for:
- Employees who rely primarily on earned income
- Professionals with long career horizons
- Individuals without significant passive income
- Households with ongoing financial obligations
Because the likelihood of a long-term disability during working years is higher than many assume, LTD plays a central role in financial risk management.
How Does Long-Term Disability Insurance Work?
At a high level, LTD works as follows:
- You are covered under an employer-sponsored or individual LTD policy.
- A qualifying illness or injury prevents you from working.
- Short-term disability benefits are exhausted (if applicable).
- An elimination period is satisfied.
- Monthly benefits are paid as long as disability criteria are met and the benefit period continues.
Claims typically require medical evidence and periodic reassessment.
Key Coverage Components
Most long-term disability policies include:
-
Benefit Percentage
Portion of income replaced, commonly around 50–60%. -
Definition of Disability
How the policy determines whether you are considered disabled. -
Elimination Period
Waiting period before benefits begin, often 90–180 days. -
Benefit Period
How long benefits may be paid (e.g., 2 years, 5 years, to age 65). -
Maximum Monthly Benefit
A cap on monthly payments regardless of income.
These elements determine whether LTD meaningfully protects long-term income.
Definitions of Disability
The definition of disability is one of the most important policy features:
-
Own Occupation
You are disabled if you cannot perform your specific occupation. -
Any Occupation
You are disabled only if you cannot perform any occupation for which you are reasonably qualified.
Many policies transition from own occupation to any occupation after a set period.
Group vs Individual Long-Term Disability
Group LTD (Employer-Sponsored)
Characteristics:
- Lower cost
- Less customization
- Benefits may be taxable
- Definitions may be more restrictive
Individual LTD
Characteristics:
- Individually owned
- Stronger definitions available
- More customization
- Typically higher cost
Understanding the source of coverage helps set realistic expectations.
What Long-Term Disability Typically Does Not Cover
Common exclusions and limitations include:
- Work-related injuries (covered by workers’ compensation)
- Pre-existing conditions (subject to plan rules)
- Self-inflicted injuries
- Disabilities without objective medical support
- Mental health and substance-related conditions beyond limited durations
Policy details matter significantly in these areas.
What Affects the Cost of Long-Term Disability Insurance?
For employer-sponsored plans, cost factors include:
- Workforce demographics
- Occupation classifications
- Benefit duration and replacement percentage
- Elimination period length
For individual policies, premiums are influenced by:
- Age and health
- Occupation risk
- Policy features and riders
More generous definitions and longer benefit periods increase cost.
Smart Questions to Ask an Employer or Agent
When evaluating LTD coverage, consider asking:
- How is disability defined under this policy?
- How long do benefits last?
- Are benefits taxable?
- Are mental health conditions limited?
- How does this policy coordinate with Social Security Disability?
These questions help reveal how benefits perform in real scenarios.
When Long-Term Disability Makes Sense — and When It Might Not
Long-term disability insurance makes sense if:
- Your income supports your lifestyle
- You have limited passive income
- You face long-term financial obligations
It may be less critical if:
- You have substantial guaranteed income sources
- You have sufficient assets to self-insure income loss
- You are near retirement
Cheat Sheet
| Feature | Long-Term Disability |
|---|---|
| Coverage Purpose | Extended income replacement |
| Benefit Duration | Years or to retirement age |
| Income Replaced | Partial (commonly 50–60%) |
| Typical Source | Employer or individual |
| Definition of Disability | Own or any occupation |
| Covers Permanent Disability | Yes (subject to terms) |
Key Takeaway
Long-term disability insurance protects against extended loss of earning capacity rather than short-term disruptions. Understanding disability definitions, benefit duration, and policy limitations is essential to knowing whether coverage will sustain income over the long run.