Disability insurance isn’t just for people with dangerous jobs. In fact, disability claims aren’t usually connected to work-related injuries or illnesses. It may also help people who suffer long-lasting health issues related to coronavirus.
Long-term disability insurance provides income for an extended period if you’re unable to work because of a disability. It usually pays 50-60% of your salary, depending on the policy.
Life Happens, a nonprofit consumer group, estimated that people have a 30% chance of getting an illness or injury that keeps them out of work for at least 90 days. Most of these issues aren’t work-related, so you’re not eligible for workers’ compensation.
John Barnes, certified financial planner and owner of My Family Life Insurance, suggested people look into disability insurance if they would struggle to pay bills, mortgage or loans if they couldn’t work.
“Disability insurance is often the ‘forgotten’ insurance, but it ensures your ability to produce an income. These people who are sick and quarantined won’t be making an income,” Barnes said.
Barnes said more people have been inquiring about disability insurance in light of the coronavirus. Insurers usually require that you’re employed to get a disability insurance policy.
“Those who are furloughed and unemployed are currently ineligible for disability insurance,” Barnes said.
Coronavirus and Long-Term Disability Insurance
The exact definition of a disability varies by company and policies. Here are some differences:
- Some will only payout if you’re completely disabled and can’t work at all.
- Others will give you a portion if you’re partially disabled and must cut back your hours.
- Other policies will pay you if you can’t do your specific job but can do something else.
- Still others will pay if you can’t perform any work duties.
You can only collect on a disability insurance policy if you can’t work or you’re limited because of a disability. You can’t receive money if your employer closed or your governor implemented social distancing or lockdown requirements. Those actions don’t make you eligible for long-term disability payouts.
The other issue is the elimination period. The elimination period is the time between when a doctor diagnosed the disability and when you start receiving payments.
Elimination periods can last between 30 and 365 days, depending on your policy. The norm is at least 90 days. The longer the elimination period, the cheaper the long-term disability policy. That’s because the longer the period, the less chance the insurer will have to pay anything.
Given the length of elimination periods, you likely won’t be eligible for long-term disability payouts unless the coronavirus has long-term health effects that restrict your work.
If you do receive long-term disability payouts, how long a policy pays you depends on the fine print. The benefit period length can include one of these three:
- A limited amount of time as stated in the policy
- As long as you’re out of work
- Until you’re 65 if needed
Long-Term Disability Insurance Exclusions
Unlike life insurers, which may exclude coronavirus coverage on your policy, Barnes said he hasn’t heard of any disability insurance companies adding coronavirus exclusions to policies. Instead, long-term disability companies are still offering policies the same as usual.
However, a policy may restrict payouts related to the coronavirus if you already have the illness.
Though Barnes said he hasn’t heard about any coronavirus exclusions, long-term disability policies often have other exclusions.
Policy exclusions can include:
- Uncontrollable diabetes
- Back pain
- Mental illness, such as anxiety and depression
- Alcohol or drug-related issues
Pregnant women also can’t buy long-term disability coverage that involves pregnancy. Long-term disability insurers consider pregnancies a pre-existing condition, so you can’t get covered for it.
You can still buy a policy and the insurer will cover you for non-pregnancy-related disability issues. However, if you have an existing policy and get pregnant, the policy may cover pregnancy-related complications if you’re not able to work. It won’t help with maternity leave, though.
If you’re pregnant and looking for disability coverage, you can ask your employer if it has short-term disability insurance for maternity leave.
Another Option – Short-Term Disability Insurance
Short-term disability insurance is coverage for shorter periods. This coverage usually pays you up to 70% for between three and six months, depending on the policy.
The elimination period is also much shorter than long-term disability, usually a few weeks.
However, unlike long-term disability, there aren’t many insurers who offer short-term plans for individuals. Instead, employers often provide this type of coverage as part of its benefits package. Employer-sponsored short-term disability insurance usually costs little to no money.
People in California, Hawaii, New Jersey, New York and Rhode Island have another option. Those states provide their own short-term disability plans. You’re able to tap into disability funds for up to six months in those states if you become disabled.
How Much Long-Term Disability Insurance Costs
Long-term policies often cost between 1 and 3% of your salary. The exact cost depends on many factors, including:
- Benefit period
- Elimination period
Employers sometimes offer long-term disability insurance. However, they often have lower payouts and are linked to that job. Employer coverage is often not enough, but it can provide supplemental coverage to help you if you’re disabled.
How to Apply for Long-Term Disability Insurance
Applying for long-term disability insurance is similar to applying for life insurance. Younger, healthier people with safe jobs will get the lowest rates.
Barnes suggested people apply as soon as possible when they’re interested and eligible for coverage. Delaying long-term disability coverage could result in much higher rates as you age or develop health issues.
When finding a company, limit your search to companies with positive consumer reviews and financial stability. A good idea is to check a company’s AM Best rating to make sure of its stability.
Once you narrow your companies, get quotes from multiple insurance companies. Seek quotes for similar policies and find the option that makes the most sense for your situation.