How to get the best long term disability insurance for you

Psychologists would say it’s an example of a judgement bias called the recognition heuristic: If of two alternatives, one is recognized and the other is not, the recognized alternative is given greater weight. People instinctively grasp the risk of dying: They know that if they pass away, they won’t be able to earn the income their families depend on – so they buy life insurance. But the risk of disability is a little fuzzier to most people: That lack of recognition causes them to underestimate the problem – so they put off getting disability insurance.

But facts are facts, and the reality is that 1 in 4 workers will become disabled during their working years.¹ 1 in 8 experience long-term disabilities which last more than five years.² And while people commonly associate disability with injuries caused by accidents, most disability is actually caused by illness. In fact, almost 90% of long-term disabilities are due to causes other than injuries.³ 

Long term disability insurance (or LTD) can help protect a portion of your income if you cannot work due to illness or injury. Disability insurance plans are a powerful defense against disruption to your way of life. But like the need for disability coverage, the process for getting a disability insurance policy is a bit fuzzy to most people. This article will help clarify matters by telling you about:

• Key features of long term disability insurance policies
• Top ranked companies for long term disability insurance
• How to get the LTD policy that suits your needs

Every disability insurance policy – long term or short term – is a binding contract with an insurance company: you pay monthly (or yearly) premiums to an insurance company, and in return they are obligated to pay a specific monthly benefit (typically 50% - 80% of your salary) while you are disabled. Short term disability insurance (STD may be provided through the workplace as a mandatory, employer-paid benefit. LTD insurance policies can be much more customizable, especially when bought individually, although coverage is also provided in many workplace benefits plans. 

A lot of things can happen over the course of a decades-long career, and there are many different kinds of disability scenarios. It is helpful if the policy covers more possible scenarios, with fewer unpleasant surprises (like an unexpected rate hike) down the road. These are the important features to look for: 

An own-occupation definition of disability  

STD and LTD policies both have a formal definition of what constitutes a disability in order to qualify for benefits. However, a long term disability policy further distinguishes between own-occupation and any-occupation disability: Own-occupation means you qualify if you can’t work in your specific specialty or field; Any-occupation policies will continue payments if you are unable to work in any other occupation for which you are suited by education, training, and experience.

This distinction is critical, especially for high-income professionals. While there are many jobs someone can do with a diagnosis of arthritis, if you are a surgeon or an orthodontist it could keep you from ever treating another patient – and earning the level of income commensurate with your specialty.

A long benefit period

People buy LTD policies to replace income for as long as they’re disabled, so benefit period length is among the most important decisions to make when applying for a policy. But it comes at a cost, since premiums go up with benefit period length; standard choices include 2, 5, or 10 years; to age 65 and to age 67 (or normal retirement age.) A few companies, like Guardian, offer to age 70 for individual disability coverage.

The average duration of a long term disability is 2.6 years⁴, so a 2-year benefit may not provide the reassurance you’re looking for, but a 5-year benefit can be more likely to cover your needs. Nevertheless, you could consider opting to get benefits through retirement age. The cost may not be much higher than for a 5-year plan.

Guaranteed renewable and non-cancellable

You don’t want the insurance company to suddenly cancel your policy after years of paying premiums. A useful feature to look for in a disability insurance policy is a guaranteed renewability clause, which means it can’t be canceled as long as premiums are paid on time. However, your premiums can be increased. Consider looking into disability insurance policies that are both guaranteed renewable and non-cancellable, which means if your premiums are paid on time, your policy cannot be cancelled, premiums cannot be increased, and policy provisions cannot be changed. 

Future purchase option

It can be better to purchase LTD early in your career, because you’re likely to be healthier and qualify for lower rates. However, your peak earning years may still be a way’s off. If you suffer a disability in 10 or 20 years, the benefit amount my not be enough to support your lifestyle at that point. This optional provision (or rider) lets you increase individual disability insurance coverage in the future as your income rises, without having to undergo a medical exam or provide proof of insurability. In other words, you’re locking in lower rates for life.

Do an online search of top ranked⁵ long term disability insurance companies for individual coverage (rather than employer-sponsored coverage), and you’ll find Guardian on many of the lists. Like other top-tier providers, Guardian works hard to create individual disability insurance policies which provide outstanding protection and benefits when policyholders need it most. If you’re looking for a disability insurance policy with the key features described above, here’s what you’ll find:

Guardian offers two types of own-occupation definitions for individual disability insurance

This gives policyholders with different needs an extra option for comprehensive coverage while also helping to control premium costs:

• If you can’t work in your profession but are willing and able to work in some other capacity, Guardian’s True Own-Occupation definition means you can get your full benefit payment even while holding another kind of job.
• Modified Own-Occupation pays a full benefit if you can’t work in your profession and you are not gainfully employed in another capacity.

One of the longest benefit periods available

As life expectancies increase – and careers begin later due to advanced education requirements – it’s no longer safe to assume your working years will be done by your mid-60s. Guardian is among the handful of insurance companies offering an option for LTD coverage to age 70. 

A comprehensive set of individual disability insurance riders, including two future purchase options

Guardian offers two ways to increase coverage as your income rises:

• The Future Increase Option⁶ lets you increase coverage – if you choose – annually through age 55.
• The Benefit Purchase Option⁷ gives you the opportunity to increase coverage every three years until age 55. You have to apply for and purchase at least 50% of the additional coverage offered at each opportunity in order to keep the rider in effect.

Guardian also offers a number of other riders for individual disability insurance to protect your finances in the event of disability, such as Student Loan Protection and Retirement Protection Plus which replaces the contributions that would have been made to your defined contribution plan while totally disabled. 

Some of the strongest premium and coverage guarantees 

All Guardian individual long term disability insurance policies are guaranteed renewable and non-cancellable.

Start by looking at what disability benefits you already have, if any. Many companies and organizations provide short term disability coverage as part of their employee benefits package. While that may not provide a long-term income solution, it’s a key part of your overall disability insurance protection. Make sure to find out the benefit period of your STD plan. You don’t want or need LTD coverage to overlap with your STD benefits. Here’s why: A longer elimination period (the time you wait between filing a claim until you can receive benefits; also called a waiting period) can lower your LTD premiums. If your STD lasts a year, that can lower your LTD costs substantially with a year-long elimination period compared to a 2-month waiting period. 

If your employer provides LTD insurance coverage you probably want to take advantage of that as well. These plans feature group rates, and the company may subsidize a portion of the premiums. However, group LTD insurance plans may be limited compared to the features and benefits under a comprehensive individual policy.

What if you’re a sole practitioner? You may also be able to get disability insurance benefits through a professional or membership organization. While the plans may not be subsidized – and are likely to offer limited benefits – you’ll still get the relatively low rates of a group disability insurance policy.

Once you know how much coverage (if any) is available through your workplace or association, speak with a financial professional to get the comprehensive individual disability insurance policy you need – or fill in the gaps with a supplemental insurance plan through your employer, if it’s offered. Make sure that professional is familiar with the specifics of buying an individual disability insurance policy – if you don’t know one, a Guardian financial professional can help you get a disability quote. Tell your financial professional as much as you can about your financial situation and concerns so that he or she can start looking into the plans and options that meet your needs. Don’t shy away from asking questions, especially about any disability terms and phrases you’re unfamiliar with.

Discuss different coverage scenarios: What happens if you have an illness that takes you out of the workforce for a few years? What if you have a physical impairment that limits your productivity, but still allows you to practice your profession?

Cost considerations

Expect to pay anywhere from 1% to 3% of your annual income for a quality long term disability insurance plan.² The actual premiums you pay will depend on your age, health status, the elimination period, benefit amount, period, plan provisions, and other factors. Talk to your financial professional about ways to control insurance premium costs, for example by opting for a longer elimination period. You can also explore level and graded premium options to make payment easier.

Younger and healthier applicants are generally offered lower premiums, and sometimes, broader protection: If you wait to apply until after you’ve been diagnosed with a preexisting medical condition, there’s a good chance it will be excluded from coverage. So, don’t put things off. Start working together with a financial professional to come up with the long term disability plan: a policy that is uniquely tailored to your protection needs.

What is comprehensive long term disability insurance?

Some of the most comprehensive long term disability insurance policies include an own-occupation definition of disability which means that you qualify for benefits if you can’t work and earn income in your own profession. These policies also feature a benefit period that provides replacement income for as long as it is needed – even through retirement age. The policy should be guaranteed-renewable and non-cancellable, so that as long as your premiums are paid on time, your insurance policy cannot be cancelled, premiums cannot be increased, and policy provisions cannot be changed. Also, many comprehensive LTD insurance policies offer a variety of riders to tailor coverage to your needs, such as Student Loan Protection.

What should I look for in a disability insurance policy?

It’s a good idea to look for LTD insurance companies that offer policies with a strong own-occupation definition of disability, a long benefit period, strong premium and coverage guarantees, and a comprehensive set of riders to customize coverage to your needs. You can also look for disability insurance providers that have high Financial Strength Ratings (FSRs) from respected independent rating agencies. This gives you the confidence that your disability insurance provider will be around to pay a benefit when you need it, years or even decades down the road.  

How do I choose long term disability insurance?

You should choose the LTD insurance plan that provides the income protection you want, in a way that is tailored to your needs. It’s a good idea to start by seeing what’s available through your employer, especially for short-term coverage. Then, speak with a financial professional to get the personalized long-term protection you need with an individual policy. Look at the benefit amount and benefit period, the definition of disability (own-occupation is preferable to any-occupation), company financial strength ratings, policy provisions, flexibility to add coverage, optional riders, and whether or not the company can change the policy terms and/or premiums. 

How long does long term disability insurance last?

There are two types of disability insurance to cover shorter disabilities (which affect more than 1 in 20 workers each year⁸) and longer disabilities:

Short term disability insurance - Also called STD, this typically has a two-week elimination period and is designed to replace your income for a few months while you are unable to work, and almost never more than a year. It is most often obtained as a group policy through the workplace.

Long term disability insurance - Also called LTD, this type of insurance policy is designed to last for many years – through retirement if needed – replacing 50%-80% of your income if something happens and you are unable to work. It may be purchased through the workplace, but more comprehensive coverage may be usually obtained in the form of an individual disability policy purchased through a broker or financial professional.