Long-Term Disability vs. Long-Term Care Insurance
Understanding the Difference
Long-Term Disability Insurance and Long-Term Care Insurance are two insurance products that are a little less common, sometimes confused for each other, and often overlooked when individuals and families are working to craft their own plan. Long-Term Disability (sometimes shortened to just “Disability” or “LTDI”) is an insurance product intended to replace your income if you should become injured or disabled and unable to do your job for an extended period of time. Long-Term Disability typically includes an “Elimination” period, which is a period of time after which you become disabled where you are not eligible for benefits. A separate insurance product, Short Term Disability Insurance, can be purchased to cover these expenses. Once the LTDI policy kicks in, it will pay a monthly benefit, typically until a set age.
Own Occupation vs. Any Occupation
There are two main categories of Long Term Disability Insurance – “Own Occupation” and “Any Occupation.” With Own Occupation Disability Insurance, the benefits will be paid out if you can not do the occupation that you have when you take out the policy. Own Occupation policies are typically used to protect against an income-impacting disability for individuals who might be highly trained in specific physical skills – often involving hands. The classic case for this is a surgeon who would suffer severe loss of income if they have an injury or disability like a neurodegenerative disease that might impact their ability to perform surgery.
Any Occupation policies, on the other hand, pay benefits only if the insured is unable to perform any occupation. For individuals whose work is mostly mental and communication, Any Occupation is likely a better choice. As you can imagine, Any Occupation policies are less expensive because they will pay benefits in narrower situations.
Many Own Occupation policies transfer to Any Occupation policies after a period of time allowing for the insured to retrain in another area to increase their income potential.
Long-Term Care Insurance
Long-Term Care Insurance, despite sounding similar, is a whole different ball of wax. Long-Term Care Insurance is a product that will cover costs associated with care for chronic or long-term term care – so expenses like nursing home care, assisted living, or in-home health care. It can also cover skilled nursing, rehabilitation, and personal care services.
Long-Term Care will typically kick in when the insured is unable to do 2 of the 6 “Activities of Daily Living” or ADLs. Those six ADLs are:
Bathing
Dressing
Eating
Transferring
Continence
Toileting
Like Long-Term Disability, Long-Term Care also has an elimination period.
Whether or not to purchase Long-Term Care insurance is a complicated decision. I’ll delve into more of that complexity in the next post.