What is long-term disability insurance?

It may be more accurate to call both short-term and long-term disability insurance “wage replacement insurance.” Let’s back up a little before we get into that.

This is a tough example, but it happened to a friend. She was a mid-level executive at a health care company and had been feeling not quite right for a while. Her doctors were testing her for a number of different things but could not seem to nail down a diagnosis or a prognosis. The process took months; she used up all of her paid time off — the company did not differentiate between sick time and vacation — and started to take time off without pay.

After a few months of ruling things out, her doctors had a diagnosis: amyotrophic lateral sclerosis. ALS is a progressive neurodegenerative disease, and it is fatal. No one could tell our friend which systems would be affected or if she and her family could expect a certain sequence of events. No one could predict how long any of this would take, either.

Her speech was among the first things to go, and it quickly became apparent that her ALS included dementia, too. Continuing in her job was not an option. She had negotiated contracts for a living; it just wouldn’t work.

Her company had a great benefits package (this happened a while back), so she had employer-sponsored short-term and long-term disability coverage. She also had a mortgage and household obligations; her family needed her salary.

The short-term disability coverage kicked in immediately because she had exhausted her PTO (there is usually a waiting period, sometimes as long as 14 days). The policy paid her 60 percent of her salary, based on her gross weekly earnings. This was short-term coverage, though, and that meant the benefit period would run out, in her case, in 90 days (the industry maximum is two years).

Her family turned to the long-term disability policy. We’ll explain the next steps in our next post.

Source: Insurance Information Institute

Share