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Is Disability Insurance from an Employer the Same as Long-Term Care Insurance?

Quick Answer

Don't confuse an employer's disability insurance with long-term care. With a disability policy, you're replacing a portion of your income if you can't work. It does not pay for long-term care.
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Detailed Answer

Disability insurance is not Long-Term Care Insurance. Sometimes people think the disability policy they have from their employer covers long-term health care. It does not. Disability insurance replaces your income. The policy will replace a portion of your income every month if an injury or illness prevents you from working. Most disability policies will stop paying benefits at age 65.

If you leave your employer or retire, your disability policy is discontinued. Disability insurance is not a replacement for Long-Term Care Insurance, nor is it a plan to address the costs and burdens of declining health and aging.

What is the Difference?

When you think of Long-Term Care Insurance, you think about a way to protect your income and assets from the high costs of long-term health care. While you can need long-term health care services at any age, your risk of needing care increases as you get older.

Long-Term Care Insurance provides benefits when you require help with daily living activities or supervision due to dementia. People require long-term health care due to an illness, accident, or the impact of aging.

As a person gets older, they experience a decline in their health, mobility problems, and even memory loss. Traditional health insurance, including Medicare and supplements, will not pay for most long-term health care expenses. Medicaid will pay for this type of care, but only if you have little or no income and assets.

LTC Insurance pays for in-home care, adult day care, assisted living, memory care, and nursing homes, in addition to other services and benefits, depending on the policy.

An LTC Insurance policy also helps reduce the stress and anxiety otherwise placed on your adult children, who become default caregivers when no advanced plan is in place.

LTC Insurance Usually Not Obtained Through Employer

Long-Term Care Insurance is usually purchased in your 40s or 50s before retirement. Most LTC Insurance is not purchased at the workplace since individual plans are generally more affordable and have much richer benefits.

The benefit of an employer-offered 'group' Long-Term Care Insurance plan is reduced underwriting requirements and the convenience of payroll deduction.

While some employers will pay some or all of the premium, that is highly unusual. Once you retire or leave your job, you would become fully responsible for paying the entire premium yourself to maintain the policy.

Individual Long-term Care Insurance is fully medical underwritten, so you must have reasonably good health to qualify for coverage. Premiums would be calculated, in part, by your age, health, and family history.

Disability insurance, on the other hand, protects your income if you are unable to work due to a disability or illness. There are long-term and short-term disability plans that employers offer. There are many reasons why someone might not be able to work, including illness and accidents.

The most significant difference between short-term and long-term disability insurance is the amount of time you will receive benefits once you cannot work.

Disability policies vary, but short-term disability insurance typically covers the employee for between 3-6 months. Long-term disability provides benefits for a much more extended time period, and many will pay through the retirement age of 65.

Short-term disability plans will pay a higher percentage of your income¬—sometimes up to 70%. However, long-term disability will pay anywhere from 40 to 60% of your previous income - but for a much more extended period of time.

There are disability policies available for self-employed individuals or for those who do not have a disability policy available at work.

Long-Term Care Insurance: Pays for your care, and the policy stays with you forever.

Disability Insurance: Pays part of your income, and the policy ends when you leave your employer.

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