Long Term Disability Insurance vs. Long Term Care Insurance

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There are various insurance options to protect against the financial implications of becoming disabled, including Long Term Disability and Long Term Care insurance. Many people need both, yet most have neither.

What is Long Term Disability Insurance?

Long Term Disability insurance (LTD), also called Income Protection, is essentially insurance on your income. LTD provides a monthly income in the event you become disabled as a result of a covered accident or illness and can no longer work. Typical policies will pay up to 70% of your salary and begin payments after a specified waiting period (often 6-12 months).

Experts recommend putting an LTD plan in place while you are young to secure your income during your most lucrative working years. Many plans come with riders that allow you to increase protection as your income grows—with no additional medical tests. It’s a great way to ensure that you can protect your income, regardless of any changes in your health.

The fine print can be complicated, so when evaluating LTD options, it’s important to understand a few key nuances. First, if you can afford it, you’ll want coverage that is non-cancellable and premiums that are guaranteed renewable, meaning that if your premiums are paid on time, your policy can not be cancelled, premiums cannot be increased, and policy provisions cannot be changed.

If you’re among the millions of Americans with debt, you may be wondering what happens if you pass away before you settle those obligations. Some can erode assets that you had hoped to leave to your heirs. In certain cases, family members may be personally on the hook for your debt. Spouses and others are generally responsible for paying debts if they are joint account holders or if they cosigned a loan.

Many people buy Life insurance to cover debt and final expenses. It can help your loved ones settle your obligations without going into debt themselves.

In most cases, Life insurance proceeds can’t be touched by creditors as long as an individual beneficiary is named on your policy. If you neglect to name a beneficiary, Life insurance proceeds generally revert to your estate, and could be available to creditors during probate. For this reason, it’s a good idea to keep your beneficiary information updated.

Term Life insurance is suitable for most people’s needs. You can select a policy length that matches the anticipated duration of your longest debt, or look for an annual renewable term policy may better fit your needs. The Alumni Insurance Program provides both options.

Second, if possible, you’ll also want to secure “own occupation” coverage, which means that you’ll receive benefits even if you can work in another, related occupation.

Some employers provide LTD as an employee benefit, but many people need an individual policy to supplement employer coverage. Individual LTD usually requires full medical underwriting, while coverage through work may not.  In some cases, a small group of employees or partners may secure LTD at better rates and with less underwriting than if they were to seek coverage on their own.

Some argue that LTD is more important than Life insurance, as a disability can result in both lost income and dramatically increased expenses.  (We at Meyer and Associates would advise individuals to consider both LTD and Life Insurance.)

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What is Long Term Care Insurance?

Long Term Care insurance (LTC) helps ensure that you’ll have access to high quality care should you ever need it. Some consider it Asset Protection because it ensures you’ll get the assistance you need without spending down your life’s savings. Having coverage can also help relieve financial and caregiving pressure on your family members.

LTC helps pay for the costs of health care services if you cannot perform activities of daily living (ADL).1 LTC policies typically give you the option to receive care in the setting of your choosing—a nursing home, assisted living, or the comfort of your own home.

LTC is complicated, with lots of choices of durations, daily rates, dollar amounts, and limitations. And it requires full underwriting. Pre-existing conditions can disqualify applicants from approval, so it is important to seek professional help when evaluating your options.

Linked benefit products combine Life insurance with some coverage to pay for long term care and are an increasingly popular option for some.

Our Advisors Can Help

Both LTD and LTC are important coverages. Many people need both and may have family members who need both.

It’s important to apply sooner rather than later, and before health conditions emerge such that becoming approved is difficult.

1Typically, insurance is triggered when the insured cannot perform at least two of six daily living functions. Activities of daily living (ADLs) may include bathing, dressing, toileting, transferring, continence ,and eating.

Contact an Advisor to Explore Your Options.


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