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What Is Long Term Disability Insurance?


Doctors pushing patient on gurney down hospital corridor
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Long term disability insurance (LTD) is an insurance policy that protects an employee from loss of income in the event that he or she is unable to work due to illness, injury, or accident for a long period of time. Some estimates state that the average employee with a long term disability misses 2.5 years of work. Long term disability insurance does not provide insurance for work-related accidents or injuries that are covered by workers' compensation insurance.

However, long term disability insurance ensures that an employee will still receive a percentage of their income if they cannot work due to sickness or a disabling injury. Long term disability insurance is an important protection for employees when the U.S. Census Bureau estimates that an employee has a one in five chance of becoming disabled.

Long term disability insurance is usually provided by employers, and there are a variety of differing plans available for employers to offer as part of a comprehensive employee benefits package. If a company doesn’t offer long term disability insurance or if an employee wants additional coverage, he or she has the option of purchasing an individual long term disability plan from an insurance agent. Most frequently, though, long term disability insurance is available through the employer; it is expensive to purchase as an individual.

Long term disability insurance, provided by an employer, may be inadequate to meet a disabled employee's needs. This is the second reason employees might want to consider purchasing supplemental long term disability insurance. Additionally, payments to the employee from their employer's long term disability insurance are taxable income whereas payments from an employee purchased plan are usually not.

Long Term Disability Insurance Plan Coverage

Long term disability insurance (LTD) begins to assist the employee when short term disability insurance (STD) benefits end. Once the employee's short term disability insurance benefits expire (generally after three to six months), the long term disability insurance pays an employee a percentage of their salary, typically 50-70%.

Long term disability payments to the employee, in some policies have a defined period of time, for example, two-ten years. Others pay an employee until he or she is 65 years old, this is the preferred policy.

Each long term disability insurance policy has different conditions for payout, diseases or pre-existing conditions that may be excluded, and various other conditions that make the policy more or less useful to an employee. Some policies, for example, will pay disability benefits if the employee is unable to work in his or her current profession; others expect that the employee will take any job that the employee is capable of doing - a big difference.

Long term disability insurance is an important component of a comprehensive employee benefits package. In fact, according to experts, long term disability insurance coverage is as important to an employee as life insurance. Employees are responsible to examine their employer's policy to ensure that it meets their needs. If not, employees are responsible to purchase their own expanded coverage which may be available at a somewhat reduced rate through their employer's insurance carrier.

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Susan Heathfield makes every effort to offer accurate, common-sense, ethical Human Resources management, employer, and workplace advice both on this website, and linked to from this website, but she is not an attorney, and the content on the site, while authoritative, is not guaranteed for accuracy and legality, and is not to be construed as legal advice.

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Also Known As: LTD
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