Five Common Long-term Disability Insurance Myths, Debunked

Five Common Long-term Disability Insurance Myths, Debunked

When you think of long-term disability insurance, what comes to mind?

According to a 2016 LIMRA survey, only one-third of Americans have disability insurance coverage. Considering this, the answer may very well be that you don’t think about long-term disability insurance at all. But for those who do, you may have a lot of negative thoughts swirling around your head.

There is a lot of misinformation out there regarding long-term disability insurance. We’re here to set the record straight on five of the most common myths. And check out how we took down three other long-term disability misconceptions here.

“I don’t need long-term disability insurance coverage.”

One of the most common myths about long-term disability insurance is it’s not needed at all. You might be thinking you get enough protection elsewhere, but most need a stand-alone long-term disability insurance policy to ensure adequate coverage.

  • It’s different than workers compensation. Some people think they can rely on workers comp to cover expenses if they become disabled. It’s a nice safety net to have, but it’s not enough. Around five percent of accidents or illnesses are workplace-related, which means workers comp won’t even cover them. It’s best to build your own safety net with a comprehensive long-term disability insurance policy which doesn’t rely on a benefit your employer might not offer.
  • It’s different than Social Security Disability Insurance. Another common replacement for long-term disability insurance is Social Security Disability Insurance (SSDI). SSDI is a government program which provides a monthly stipend based on past earnings to people under age 65, who are disabled. While this sounds exactly like something you want your disability insurance to do, it can be hard to qualify for SSDI as you typically need to be completely disabled to qualify. You can collect from both your private long-term disability policy and SSDI, and with a Social Benefits Offset Rider, you can reduce your private policy by the amount you receive from SSDI, lowering the amount you pay.
  • Your employer’s disability coverage isn’t good enough. We’ve said it before and we’ll say it again, your employer-sponsored insurance coverage isn’t enough. You could end up taking home only 40 percent of your income through a group plan.
  • You shouldn’t bank on not becoming disabled. It’s easy to think you don’t need long-term disability insurance simply because you won’t be disabled during the course of your career. One in four people in their 20s will become disabled before they retire.

“I’m a government employee; I can’t get long-term disability insurance.”

Many government employees are enrolled in retirement plans like the Federal Employees Retirement System (FERS). FERS enrollees can apply for disability retirement as long as they meet certain qualifications.

If you participate in these programs, insurance carriers are limited in how much coverage they can offer. Generally, insurance companies such as Guardian consider government employees as having 40-60 percent of group plans. So while you can buy private supplemental long-term disability insurance in addition to having FERS benefits, you may not get as much coverage as you expected.

The insurer won’t pay my claim!”

A major concern with insurance in general is you’ll put all this money into building your safety net, and when the time comes to actually use it the insurer won’t pay out. There are a few things in particular about long-term disability insurance which make people wary.

First, it can be hard to get disability coverage for illnesses such as depression and bipolar disorder. Some people use this as evidence that insurers won’t pay out, but it’s a specific case which can be combated by medical records and proper documentation of treatment.

Most of the time, claims are cut and dried: You lose your eyesight or get cancer, you can’t work, and you receive disability payments. The horror stories of denied claims are complicated fringe cases, mostly revolving around mental illness.

Complications can also arise depending on the type of coverage you have. If you have an Own- Occupation Policy, you can receive disability benefits in the event you’re unable to work in your own occupation. With an Any-Occupation Policy, you’ll only receive benefits if you can’t work any other job. This is obviously a lot broader, and it’s the definition many group plans use. People who have these types of policies, but don’t really understand them may accuse the insurer of not paying in certain instances, even though that’s not what is outlined in the policy itself. They can work other jobs, so they don’t qualify for a claim.

Finally, people often fall prey to negative reviews they read online. Take those reviews with a grain of salt, as they represent a small subset of long-term disability policy owners. You might see a handful of negative reviews for example, The Standard, but the company insures around 10 million people. Negative reviews aren’t necessarily representative of a company’s overall service standard. Sadly, people aren’t super enthusiastic when it comes to insurance, and they rarely leave glowing reviews such as, “Bought a policy, it worked like it should, thanks.”

That’s not to say you won’t ever run into a particularly thorny situation, but you shouldn’t avoid long-term disability insurance just because you think you won’t get what’s due. In nearly every situation, you will.

“I need long-term disability coverage until I retire.”

When you purchase a long-term disability policy, you’ll need to choose how long your benefit period is – that is, how long you’ll be receiving those benefits. Typical long-term disability benefit periods are two, five, or ten years, or until retirement.

Receiving benefits until you reach retirement age sounds great, right? You might think this is the best option, but in many cases it adds unnecessary expense.

In general, the longer the benefit period, the more expensive the long-term disability policy. This, combined with the fact that most disabilities only last three years, means a policy with a benefit period which pays until retirement can be unnecessarily expensive. A five-year policy will cover most cases, and can save you a lot of money in the long run.

“I must buy a non-cancelable policy so my rates don’t increase.”

You don’t want your long-term disability insurance policy to ever be canceled. Confusingly, “non-cancelable” doesn’t really have anything to do with this.

Instead, a non-cancelable policy means your rate is guaranteed and won’t increase over the life of the policy.

This is a nice feature to have, and many carriers offer it standard on their policies. If your policy doesn’t have this feature, don’t panic. It may not be worth paying extra to get.

That’s because the risk of a rate change on your policy is very low. Rate changes must be filed through the state in which it’s occurring, and there are strict regulatory processes to protect consumers against arbitrary rate hikes. Going back to The Standard again, they’ve never raised policyholder rates, and they’ve been around since 1906. That’s how slim the chances are of having your rates changed mid-policy.

You may not have long-term disability insurance yet, and if you don’t, don’t let any of these misconceptions scare you away. Get a free quote and talk to our experts to find out exactly how long-term disability insurance can work for you.

This article originally ran on Policy Genius.