What Benefits Should I Look for in a Long-Term Disability Plan?

When it comes to selecting a plan, the first thing to determine is whether you have access to a group plan through your employer. Group plans are typically easier to qualify for and tend to be lower-cost alternatives. Many people are not aware of the benefits offered by their employer – so it’s smart to ask if you don’t know.

If your employer doesn’t offer this benefit, you’ll likely need to consider an individual disability insurance policy. In these instances, Dave recommends a benefit period of at least five years, but prefers to age 65 if it is within your budget. Since 85% of disabilities are resolved within five years, this is the shortest term that he feels is appropriate. A benefit amount equal to 60-70% of your monthly income is a good starting point and can be reduced based on your progress with debt and savings. An elimination period (or “waiting period”) of 90-180 days is recommended since you can rely on your emergency fund during this period, driving down the cost of your policy. Many of the riders to these plans are “bells and whistles” that really add very little value to the overall protection. As long as you have a guaranteed renewable plan through a quality company, these are be the initial areas of coverage on which you should focus.

It is important to keep the risk of long-term disability in perspective. Overspending for a “Cadillac” type plan at the detriment of other financial goals is not recommended. It is a mistake to over-insure this risk and not equally focus on other types of core insurance plans such as term life, health insurance, etc. as well as concentrating your efforts on paying down debt and growing your savings.