Long Term Disability Insurance: Definition and How to Choose the Best Insurance

You need long-term disability insurance to protect your income if you can’t work due to a serious illness or injury. You’ll learn to weigh factors like coverage, cost, and company reputation.

This article explains what long-term disability benefits are and their importance, and guides you through picking the best policy for your needs. 

Long Term Disability Insurance: Definition and How to Choose the Best Insurance
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Understanding the Basics of Long Term Disability Insurance 

Long-term disability insurance is a type of coverage that compensates you with a percentage of your regular earnings in the event that you are unable to work due to a significant illness or injury. 

Typically comes into effect after short-term disability terminate coverage, if applicable, and the benefits can extend for several years or until you reach retirement age, depending on the terms of the policy.

It replaces part of your salary if you’re disabled. You choose a policy, pay monthly premiums, and if you become disabled, you file a claim. After a waiting period, you get regular payments.


To acquire it:

  1. Apply: Select a long-term disability insurance quote and fill out an application with your chosen provider, providing health and financial details.
  2. Undergo medical review: You may need a medical exam or to provide health records.
  3. Review and sign: If approved, review the long-term disability policy details before signing to ensure it meets your needs.
  4. Pay your premiums: Start making regular payments to keep your policy active.
  5. Update as needed: Review your policy periodically to make sure it still fits your life situation.

Why is important?

A long term disability insurance is important because your ability to earn is probably your biggest asset

It protects that asset by giving you a financial safety net if a serious illness or injury stops you from working for a long time. 


Without it, you risk draining your savings, retirement funds, or going into debt to cover living expenses when you can’t work.

The Role of Employers: Group vs. Individual Long-Term Disability Plans

Employers may offer group long-term disability plans, often at a lower cost due to group rates. These plans are a part of your benefits package. 

Coverage is tied to your employment, and if you leave, you usually can’t take the plan with you.

Individual long-term disability plans are bought personally. They’re more customizable and stay with you regardless of job changes. They can be more expensive but offer more control over policy terms.

Decoding Policy Terms: Coverage, Premiums, and Payouts

Understanding the terms of long-term income protection policies is crucial for making an informed decision:

  • Coverage refers to the proportion of your regular income that the insurance company will pay you in the event of disability. This typically ranges from 50% to 60% of your income before disability.
  • Premiums are the payments you make to the insurance company, usually on a monthly basis, to keep your policy in force. The long-term disability insurance cost can vary greatly depending on factors such as your occupation, health, and the extent of coverage you choose.
  • Payouts are the benefits you receive from the insurance company when you make a claim. These benefits are determined by the specifics of your policy, which might provide payments for a defined number of years or until you reach a certain age.

Understanding Exclusions and Limitations

These are specific conditions or circumstances where the policy won’t pay out. Common ones include pre-existing conditions, disabilities due to acts of war, or self-inflicted injuries. 

You’ll often find these in the policy’s fine print. Always read this section carefully to know what’s not covered.

The fine print may also detail other limits, such as maximum benefit periods, waiting or elimination periods before benefits commence, and specific exclusions on certain types of illnesses or injuries. 

Long Term Disability Insurance: Definition and How to Choose the Best Insurance
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Evaluating Your Needs: How Much Coverage Do You Actually Need?

To determine how much long-term disability coverage you need, consider these factors:

  • Income Replacement: Determine what percentage of your current income you would need to cover your basic living expenses.
  • Existing Debts: Take into account your mortgage, car payments, student loans, and any other debts that require regular payments.
  • Emergency Fund: Assess the size of your emergency fund and how long it could supplement your expenses in case of disability.
  • Current and Future Expenses: Include your day-to-day living costs, future education expenses for your children, and retirement savings contributions.
  • Employer-Sponsored Coverage: If you have disability insurance through your employer, subtract this coverage from the total amount you’re aiming for.
  • Inflation Protection: Consider a policy with a cost-of-living adjustment feature to ensure that your benefit keeps pace with inflation.

Choosing a Company with a Strong Reputation

Choosing a company with a strong reputation is crucial because you’re relying on them for financial stability when you’re most vulnerable. A reputable company ensures:

  • Reliability: They’re more likely to pay out claims without hassle.
  • Stability: Established companies are less likely to fold and more likely to have the funds to cover claims.
  • Customer Service: Good companies provide clear communication and support during the claims process.
  • Policy Confidence: With a solid company, you can trust that the terms of your policy will be upheld.

To evaluate long-term disability insurance providers’s reputation, consider the following steps:

  1. Financial Ratings: Check independent rating agencies like A.M. Best, Moody’s, or Standard & Poor’s for financial strength ratings.
  2. Claim Settlement History: Research how often the company pays out claims and if there are frequent disputes.
  3. Customer Reviews: Read customer reviews for personal experiences with the company’s service and claims process.
  4. Policy Terms: Review policy offerings to ensure they’re favorable and not overly restrictive.
  5. Customer Service: Test their customer service. Quick, helpful responses indicate good service.
  6. Industry Presence: A company with a long-standing presence in the industry is often more reliable.

The Best Long-Term Disability Insurance Companies

Some of the principal long-term disability companies in the USA include:

  • Guardian Life
  • MassMutual
  • Northwestern Mutual
  • New York Life
  • Principal Financial Group
  • Mutual of Omaha


Long-term disability insurance is a critical safeguard for your income. It helps ensure financial stability if you become unable to work due to a serious illness or injury. 

When choosing a policy, evaluate your personal financial needs, research potential insurance providers thoroughly, and understand the terms, exclusions, and limits of your policy. 

Whether through a group plan with your employer or a personal plan, ensure the coverage is adequate to maintain your lifestyle and meet your obligations. Opt for a reputable insurer.