Long Term Disability Basics
Learn the basics of Long Term Disability Insurance
The Council for Disability Awareness reports that the average long-term disability absence is 34.6 months. The majority of injuries and illnesses are caused by musculoskeletal injuries and cancer.
This is why employers should have a long-term disability insurance plan in place to protect employees and ensure they return to work in a reasonable amount of time.
What is Long-Term Disability Insurance?
Long-term disability insurance covers a portion of an employee's income (around 50-70%) when the employee has become injured or seriously ill. It's important to note that if an employee is hurt off the job, worker’s compensation will not cover them. When an employee cannot work for an extended period of time, a long-term disability plan can help cover a portion of the employee’s salary. Long-term disability usually kicks in after a short-term disability policy has run out. This happens around 10 to 53 weeks after an eligible event, with the average being 26 weeks.
The US Department of Labor reports that "Most long-term plans (88 percent) have a maximum amount payable and the median maximum payout in 2014 was $8,000 per month."
Who Pays for Long-Term Disability Coverage?
There are a few choices on who can pay for a long-term disability plan. Years ago, many companies paid the full amount for long-term disability. Now the trend has costs shifting away from this method. Depending on which option is chosen, there may be different costs and tax implications:
- Employer fully paid plan
- Employee fully paid plan
- Shared cost plan
Coverage Terms and Responsibilities
Disability insurance is a benefit that is generally one of the most important parts of a benefits package. While some companies opt to fund a short-term disability or don’t even offer one at all, many more employers do offer a long-term disability program funded through a third party administrator such as a disability insurer.Employers can choose how much coverage to elect for their employees. Most plans cover 50-70% of monthly salary. The duration of plan benefits can also extend for a while. Some plans only pay out 5-10 years worth of disability to anyone qualified, while others will pay out till age 65, based on a rate schedule.
Certain occupations dictate the coverage amounts and the ultimate responsibility of employers to provide adequate benefits for their workforce. The DOL advises that the lower paying occupations in the service sector tend to be less likely to elect coverage, and they are the most prone to injuries. They are also the occupational group that is most likely to apply for Social Security disability insurance.
Under plan rules, employees filing for disability can only qualify for coverage under certain terms. The main terms are listed below:
- Employees need to work for the employer for a certain amount of time before coverage kicks in.
- Employees need to work full-time, usually 30 hours or more a week.
The following are part of what a long-term disability plan benefits package may include:
- Percentage of monthly salary paid out up to a pre-determined monthly amount (typically between 50% - 70% of monthly salary).
- Starts (typically between 90 and 180 days).
Depending on plan terms, a person with a disability may be limited to how much coverage they receive and will have to choose another career for which they are suited, in education or training. Another option, usually reserved for highly skilled workers or upper management, is a long-term disability contract that allows a person with a disability to receive benefits for the lifetime of the coverage, without switching professions.