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Long-term disability insurance benefits
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A long-term illness or injury that impacts one’s ability to work can be devastating for employees. Many are unprepared to lose their income and may struggle to pay their bills or provide for their families.
Employers can spare their employees from such financial hardship by making long-term disability (LTD) insurance part of their benefits package. Doing so gives workers peace of mind and demonstrates a commitment to their well-being, which in turn, may improve talent acquisition and retention.
Table of Contents
What is long-term disability insurance?
LTD insurance is a workplace benefit that pays a percentage of an employee’s regular income if the individual is unable to work for a prolonged period due to illness or injury. Plans may be funded by the employer, the employee or both.
How does long-term disability work?
LTD insurance varies by employer. Generally, employees receive 50 to 70% of their base pay until they are able to resume work or exhaust their benefits. The average length of long-term disability coverage is two to five years, though some plans may continue payouts until age 65. At that point, individuals may be able to receive disability benefits through Social Security.
Who is eligible for LTD?
Long-term disability eligibility requirements tend to be more rigorous than short-term disability (STD). In addition to having full-time status, employees may need to demonstrate they’re unable to perform any job, not just the one they were working before the illness or injury.
When can an employee use long-term disability insurance benefits?
LTD works in conjunction with STD. As such, employees usually cannot receive income replacement through LTD until they’ve exhausted their STD benefits. The length of STD coverage is 13 to 26 weeks.
Why do employees need long-term disability insurance?
In addition to lost income, employees with a disabling injury or illness are likely to experience increased medical expenses. They might worry about being unable to pay for the care they need or cover the costs of daily living. LTD acts as a safety net for them, easing their financial burden and stress. Such benefits are valued by employees who want employers to support their physical, mental and financial health.
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LTD insurance costs
The cost of LTD insurance varies based on the level and length of coverage chosen by the employer. However, there are several ways to reduce spending without compromising benefits:
- Manage exclusion periods
Once STD benefits are exhausted, LTD can start after a waiting period of 30 days, 60 days, 90 days or longer. If employees are willing to wait for coverage and can use sick days to fill in the gaps, the plan's total cost is reduced. - Choose an a la carte plan
Insurance providers may allow employers to customize the type, length and total cost of the coverage they want for their employees. This flexibility, coupled with the fact that many a la carte disability plans rely more on contributions from employees than employers, helps minimize business expenses. - Choose digital delivery
Digital access portals and online claim forms help reduce the overhead and time investment associated with traditional disability insurance. As a result, the business saves money, and plan participants have faster access to coverage.
Job protections for employees on long-term disability
Neither STD nor LTD insurance protects the jobs of disabled employees, though employers may do so on their own accord via corporate policies. In some instances, employees are entitled to job protection under state or federal laws, such as the Family Medical Leave Act (FMLA).
Federal and state disability benefits
Employers are not required to sponsor LTD insurance. However, they must comply with any applicable federal and state laws that grant disability benefits or medical leave to eligible employees. Examples include:
- FMLA
The FMLA provides eligible employees of covered employers with up to 12 weeks of unpaid, job-protected leave for certain family and medical reasons. - Americans with Disabilities Act (ADA)
Under this law, employers must provide disabled employees with reasonable accommodations. A leave of absence from work may be considered a reasonable accommodation as long as it doesn’t create undue hardship for the employer. - Workers’ compensation
Most states require employers to purchase workers’ compensation insurance. It provides medical care, compensation for lost income and other benefits to employees who suffer work-related injuries and illnesses. - State medical leave laws
Several states have laws that provide injured or disabled employees with job-protected medical leave. Employers should consult legal counsel to better understand their state-specific requirements.
LTD and health benefits
Employers who integrate their group health and disability benefits may be able to improve the overall well-being of their employees and decrease absenteeism. However, STD and LTD plans in themselves do not provide employees with medical benefits. If disabled employees need coverage beyond what’s available via the group health plan, employers may want to consider offering long-term care insurance or critical care insurance.
Long-term care insurance
Long-term care insurance provides coverage to treat chronic illnesses and disabilities outside of a hospital setting when individuals can no longer care for themselves. These policies typically cover home health care, nursing home care, hospice care, assisted living facilities and respite care.
Critical illness insurance
Critical illness insurance or indemnity coverage pays a fixed lump sum to employees diagnosed with a medical condition that’s covered under the policy. Payments are sent directly to the plan participant and can be used to cover deductibles, co-payments, household expenses and other costs.
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Returning to work after LTD
LTD income replacement benefits end when employees return to work, but employers may be obligated to continue assisting them in other ways. For example, employees with lingering effects from a disability or illness might request accommodations to help them perform essential job functions or enjoy equal employment opportunities. Employers must grant these requests if they are considered reasonable under the ADA and other applicable state disability laws. Examples include:
- Reallocating non-essential job functions
- Altering when or how tasks are performed
- Modifying work schedules
- Acquiring or modifying equipment
- Providing paid or unpaid leave
- Allowing employees to perform light-duty work
- Making facilities more accessible
Frequently asked questions about long-term disability
What does long-term disability insurance cover?
LTD insurance covers income lost due to an extended illness or injury. Depending on the plan, employees may receive 50 to 70% of their base pay.
When does long-term disability start?
LTD insurance generally begins after STD coverage ends, which is usually a period of 26 weeks.
How long does long-term disability last?
LTD benefits commonly span two to five years. Some of the more generous plans extend coverage to retirement age, regardless of the employee’s age at the time of the qualifying disability.
Should employees get both short- and long-term disability insurance?
LTD is almost always used in tandem with STD. However, LTD tends to have stricter requirements than STD. Employees may need to demonstrate they’re unable to perform any occupation, not just the one they were working prior to the illness or injury.
Should I offer short-term or long-term disability insurance?
Sponsoring both STD and LTD insurance provides maximum coverage in the event employees suffer an illness or injury that prevents them from working. Many workers appreciate this financial safety net and, consequently, talent acquisition and retention may improve.
Is employer long-term disability insurance enough?
Whether LTD benefits can sufficiently cover all monthly expenses depends on individual financial circumstances. Workers who think they might struggle to make ends meet might want to purchase supplemental disability insurance for added peace of mind.
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This article is intended to be used as a starting point in analyzing long-term disability through employers and is not a comprehensive resource of requirements. It offers practical information concerning the subject matter and is provided with the understanding that ADP is not rendering legal or tax advice or other professional services.
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