When it comes to protecting your income from financial disaster, it’s important to understand what you have in the line of protection. In terms of financial protection, a policy to accomplish your goal would be a living benefit. A living benefit does not act as traditional life insurance because life insurance means the individual must pass away, while a living benefit means the individual benefits from the policy while they are living.
Two living benefit products include disability insurance and long term care. Each of these products are designed to protect your income during a life altering change but the two couldn’t be more different.
Disability Insurance
Disability Insurance has two options that can be purchased, those are part and full disability. Each option supplements your income by paying 60% of your paycheck but depending on the option certain criteria must be met.
Short Term Disability is designed for injuries that have no lasting effects but will take you out of work for a period of time. The goal of short term disability is to supplement your income while you heal, then get you back to work. There is a period of 30 days to 60 days depending on the term of the policy, known as the exclusion period that must be met before the policy starts to pay out. For short term disability benefits the insured would need to be out for a minimum of 6 months, but not exceed 12 months. After the maximum time allowed lapses, the benefits will stop and you will be required to go back to work either on full or light duty. Short Term Disability can be used multiple times throughout your career.
Full Term Disability is designed for injuries or conditions that completely keep you from working. This is generally permanent unless you can make a full recovery somehow. The exclusion period generally runs between 3 and 6 months before the policy will start to pay out benefits. To receive full term disability you generally need a doctor’s diagnosis along with an explanation as to why you are unable to work. Once the policy is approved you will receive up to 60% of your paycheck for the life of the policy. Some policies will expire after so many years, which would mean filing for SSI and other state programs to assist with income.
These policies are only available on an individual basis. This means if you purchase your policy through your employer, you are the only beneficiary, it does not cover your dependants, each person would need their own policy. Should something happen and you pass away, the benefits would stop. Benefits can’t be given to a surviving spouse, partner, or child.
To protect those you love, you would need to purchase some kind of life insurance and/or establish an annuity or IRA when you were working.
Long Term Care
Long Term Care is not disability insurance. Depending on your situation and family history you may or may not need Long Term Care. Long Term Care helps fund things like nursing homes, assisted living and skilled nursing. This benefit lasts only a few years, usually up to 8 years but the term of that policy is decided when purchased.
Some agents and agencies won’t offer Long Term Care products. The main reason is many agents don’t feel it’s worth the fee. as it is a bit more expensive and the benefit eventually runs out. Some agents and brokers consider it a viable option to protect your income from insolvency if you find yourself in the need of these services.
One nice aspect of LTC is that sometimes it can be used more than once. For instance, you suffer a stroke and you are put into a skilled nursing facility to rehab. While in the facility, you recover most of your gross motor skills and can live without extra help so you are able to leave. In two years something else happens and you again need one of these services, the policy will pay out benefits again.
When considering a LTC policy, ask yourself this, have your grandparents or parents needed long term care in their lives? If so is there a pattern of health issues that put them there. Things like heart attacks, strokes, diabetes, dementia or any condition that can be hereditary? If the answer is yes, you should consider a LTC policy. Another factor to consider is you don’t have to be old and retired to need a service like this. A car accident at 25 could land you in one of these facilities.
One more thing to consider, major medical insurance as well as Medicare does not cover long term care facilities. They will pay towards these facilities and skilled nursing but generally not longer than 30 to 60 days, because that is not defined as long term care.
The difference between long term care and disability is one protects your paycheck while the other offsets costs to help cover costs of long term care. If you have disability insurance, and you need an assisted living facility the policy does not cover these expenses. If you get in a car crash at 24 and need skilled nursing and rehab, a Long Term Care policy will not supplement your income. To protect your income and pay for these services you would need both products.
