Is Long-Term Disability Insurance Worth It?

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Many financial experts recommend that all working adults have long-term disability insurance. However, it’s challenging for many adults – particularly younger ones – to determine whether long-term disability insurance is worth the cost.

The amount that long-term disability insurance costs also varies, making it harder to figure out if it’s worth the investment. On average, enrollees should expect to pay between 1 and 3% of their annual salary. However, some may owe less or more depending on a range of factors, such as age, overall health, and more.

Still, by understanding what you get when you sign up for long-term disability insurance, it’s potentially easier to decide if you should get it. If you’re wondering, “Is long-term disability insurance worth it?” here’s what you need to know.

What Is Long-Term Disability Insurance?

Long-term disability insurance is functionally a financial safety net. It’s designed to replace a portion of your income if you’re unable to work due to a medical condition for an extended period of time.

With long-term disability coverage, you receive funds for a specific length of time, depending on the clauses in your policy. Some may replace income for five, 10, or 20 years. Other policies may continue sending you payments until you reach retirement age.

In most cases, there’s a slight delay between when you end up with a disabling condition and when you start receiving benefits from a long-term disability insurance policy. For example, you might need to meet the definition of having a disability for 90 to 180 days before payments are issued, depending on what’s outlined in your policy.

While many people – particularly younger adults – assume that disability is only a concern for those above a certain age, that isn’t necessarily the case. A significant part of the population becomes disabled before retirement. Based on data from the Social Security Administration, 25% of today’s 20 year olds may become disabled before they retire.

Pros and Cons of Long-Term Disability Insurance

The biggest benefit of long-term disability insurance is that it provides you with income if you’re unable to work due to a disability. Most policies provide you with funds for at least a handful of years, though some may last until you reach retirement age. In any case, that’s a significant financial safety net if you’re unable to work, and it can supplement other forms of disability income, such as what’s available through Social Security.

When it comes to drawbacks, the biggest is that you never know whether the money you’re spending in the form of premiums will pay off. However, that is true of any type of insurance. Generally, policies only provide value if you end up using them. As a result, if you don’t become disabled before you reach retirement, you aren’t receiving a benefit for what you’ve spent.

The long delay between initially experiencing a disability and the start of payments is also challenging in many cases. Unless you have 90 to 180 days of living expenses available or you’ve purchased short-term disability coverage to address the gap, you might see some financial challenges until you start receiving your long-term disability benefits.

Is It Better Than Other Options?

Technically, there’s no specific alternative to long-term disability insurance. While the Social Security Administration does have programs to assist people with disabilities, such as Social Security Disability Insurance (SSDI), not everyone is eligible, and the income amount qualifying individuals receive is fairly low.

Similarly, worker’s compensation can provide you with income if your disability is connected to an on-the-job injury. However, if you’re disabled due to another reason, you aren’t eligible for worker’s compensation.

Short-term disability insurance also serves as a safety net, and it usually kicks in soon after you’re declared disabled. However, these policies aren’t meant to last much more than one year in most cases, and some may only cover three or six months.