What Is Covered Under Long Term Disability?
Understand the full scope of long-term disability insurance. Learn what's covered, how it's defined, and policy limitations.
Long-term disability (LTD) insurance replaces a portion of an individual’s income when they are unable to work due to prolonged illness or injury. It provides income to cover essential living expenses, preserving financial stability. LTD insurance is a valuable component of a comprehensive financial plan, offering peace of mind.
Understanding Disability Definitions
Eligibility for long-term disability benefits depends on how “disability” is defined within a specific insurance policy. Policies typically use one of two primary definitions: “own occupation” or “any occupation.” An “own occupation” definition means an individual is considered disabled if they cannot perform the material and substantial duties of their specific job, even if they could perform a different type of work. For example, a surgeon unable to perform surgery could still teach.
An “any occupation” definition is more restrictive, requiring an individual to be unable to perform the duties of any occupation for which they are reasonably suited by education, training, or experience. Many policies initially use an “own occupation” definition for a set period, often the first 24 months. After this, the definition shifts to “any occupation,” making continued benefits more challenging. The ability to perform “material and substantial duties” is central to both definitions, referring to the essential tasks required to complete a job.
Conditions and Circumstances Typically Covered
Long-term disability insurance covers a wide range of medical conditions that prevent an individual from working. Musculoskeletal disorders, such as chronic back pain, severe arthritis, and joint issues, are common reasons for long-term disability claims due to persistent pain and physical limitations. These conditions can impair an individual’s ability to perform job responsibilities.
Mental health conditions like depression, anxiety disorders, bipolar disorder, and post-traumatic stress disorder (PTSD) are also frequently covered, as their symptoms can impact an individual’s ability to work. Some policies may have limitations on the duration of benefits for mental health claims, often capping them at 24 months. Neurological disorders, including multiple sclerosis and Parkinson’s disease, along with cardiovascular diseases and various forms of cancer, are typically covered, particularly when their severity or treatment side effects prevent an individual from performing their job duties.
Chronic illnesses such as fibromyalgia and chronic fatigue syndrome can also lead to long-term disability if they necessitate continuous medical treatment and incapacitate an individual. Coverage depends on the documented severity and impact of the condition on the individual’s ability to perform their occupation’s material and substantial duties.
Scope of Financial and Other Benefits
Once a long-term disability claim is approved, the coverage provides financial support and may include other services. Income replacement typically ranges from 50% to 70% of pre-disability earnings, helping maintain financial stability. The benefit period, or duration for which benefits are paid, can vary significantly among policies, commonly ranging from a fixed number of years (e.g., two, five, or ten) to payments continuing until age 65 or normal retirement age.
Before benefits begin, most policies include an elimination period (waiting period), which is the time an individual must be disabled before receiving payments. This period typically ranges from 30 to 180 days, with 90 or 180 days being common. Choosing a longer elimination period can result in lower premiums.
Some policies offer additional benefits, such as rehabilitation services or vocational training, to assist individuals in returning to work. A cost-of-living adjustment (COLA) rider can be added to some policies, providing annual increases to benefits to keep pace with inflation, though this may increase policy costs.
Situations Not Covered
Long-term disability policies contain specific exclusions for circumstances under which benefits will generally not be paid. Pre-existing conditions are a common exclusion. A disability resulting from a condition diagnosed or treated within a specified “look-back period” (e.g., three to twelve months) before coverage began may not be covered if the claim is filed within a certain timeframe (e.g., the first twelve months of coverage). This helps prevent individuals from obtaining coverage solely in anticipation of an imminent claim.
Other exclusions include self-inflicted injuries or illnesses, including those resulting from suicide attempts. Disabilities sustained while committing a felony or engaging in illegal activities are generally not covered. Injuries or illnesses due to acts of war or military service are commonly excluded from coverage.
Disabilities from intoxication or illegal drug use are typically excluded. Policies may exclude or limit coverage for cosmetic procedures or elective surgeries not deemed medically necessary. Review the specific policy document for a comprehensive understanding of all applicable exclusions and limitations.