(Almost) everything you need to know about Long Term Disability Insurance

Two reasons for this post. First, Long Term Disability (LTD or DI) is probably the most commonly misunderstood personal insurance policy. Secondly, most people are horribly uneducated on their coverage and only find out deficiencies after they are disabled."I have some coverage' is about the extend of most consumer's knowledge in this area.

Outline: You are completely disabled and unable to work and that's expected to continue for the long term. Insurance will pay you a monthly benefit that is intended to replace your paycheque.

First, here's the primary attributes you should ensure you are familiar with:

1. Waiting or elimination period. You won't get paid immediately after a disability, there's a timeframe where no benefits are paid. This is commonly 90 days. The intention here is to not pay for short term disability like a broken leg where you're off for 2 weeks. (That's short term disability, and is seperate).

2. Duration of benefits. How long are they going to pay you? The correct answer should be to age 65, but other common (and bad) choices are for 2 years or 5 years, after which time benefits cease.

3. Benefit amount. This will normally be expressed as a percentage of your income, normal max is 66% of your gross income.

4. Are benefits taxable? If benefits are not taxable, and you have benefits that are 66% of your gross, final take home pay before and after disability is pretty close (e.g. $100K gross = say $72 take home before disability, after disability, $66 take home). If the benefits are taxable, then you're going to take a pretty good hit on disability.

5. COLA/inflation rider. If you become disabled, benefits should increase roughly with inflation.

6. Own occ vs any occ vs regular occ. This is something that's heavily focused on but IMO is a meh. This section gets into the definition of disability based on 'can you work'. If you can work, but not what you're doing, then do you need to be on disability? Anyway, I'll just say that I"m counter to the industry in being less concerned about this, but will tell you to find out what the definition of disability is, just so you know.

What if my workplace coverage doesn't have decent coverage? The correct answer is to get your coworkers to agree to the upgrade and ask the company to get you better benefits. If you're paying the premium the company won't care, and the broker will be happy to sell you an upgrade. But you'll have to educated people. The reason workplace coverages cut corners is because all anyone cares about pre-disability is 'how much is the premium', and chopping benefits is an easy solution.

Further reading and factors for comparing private LTD plans.

• cause of disability. Cheap plans cover you only for accident. Proper plans cover you for 'accident and sickness'. The proper plans focus more on 'you are disabled' more so than 'how you got there'. People intuit that they will become disabled due to accident most likely. People's intuition is horribly wrong on that one.

• on again off again/part time claims. This gets into industry terms like 'partial and residual disability'. Not easily comparable amongst many plans, but just know that something other than 100% disability/0% work is more common than you might think, so ensure your plan has some sort of coverage in that event, and know what it is.

That's not everything, but it's certainly the primary points you should know as a consumer. So dust off your individual policy and cover the above points, or get the brochure from your workplace, and compare the above with what you have.