When you look at your paystub, you might wonder what the LTD under the benefits section means. LTD stands for "Long-Term Disability." It is a type of disability insurance that protects your ability to earn an income in the event you incur an injury or severe illness.
Disability insurance provides income coverage after an elimination period for conditions, such as an illness or injury, which would keep you from working for extended periods. Remember that disability insurance will not provide you benefits if you only miss a week of work due to a cold.
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What is Long-Term Disability (LTD)?
LTD is an insurance policy that provides income replacement for workers and employees unable to work due to long-term illnesses or injuries. LTD often works in conjunction with short-term disability, helping employees continue to meet financial goals and obligations such as paying their bills.
Long-term disability provides employees with a monthly income if they become disabled for more than six months before returning to work.
Long-term disability works much like how a short-term disability works. Short-term disability is voluntary insurance that provides part or all of an employee's monthly income in case of temporary disability. Like short-term disability, long-term disability requires employees to provide medical proof of an illness or injury qualified under their policy, which lasts beyond the LTD elimination period.
Once the employee meets the burden of proof, they could start receiving the specified benefits according to their policy. The employee would continue receiving the benefits until medically cleared to go back to work or the policy benefits were exhausted.
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Who is Eligible to Receive LTD Benefits?
Let us now determine who is eligible to receive LTD benefits.
Unlike short-term disability, the qualifications for long-term disability come with a stricter set of regulations. In long-term disability, an employee would typically receive benefits if they cannot do any job for more than six months. Meanwhile, in short-term disability, an employee is only awarded the benefits if they cannot execute their specific job in less than six months.
According to the insurance policy of an employee, a qualifying event would determine the benefits an employee would receive. This is why it is crucial to understand how and when the benefits may or may not apply before accepting any long-term disability insurance plan.
Qualifying events could include debilitating illnesses such as cancer, chronic pain, or injury lasting beyond 26 weeks. Although, if an employee qualifies for Social Security Disability Insurance or any other form of income replacement, the LTD policy would no longer take effect and provide benefits.
How Long Does Long-Term Disability Last?
Once long-term disability benefits pass approval, an employee could begin receiving benefits after the specified waiting period and any coordinating short-term disability benefits. STDs generally expire after three to six months, depending on the insurance plan. An employee could continue to accept benefits for the length of the insurance policy term or until they could return to work.
The typical STD policy covers anywhere from 40 to 65 percent of your base salary and lasts for three to six months. In case of an extended disability, an LTD policy would start when the STD ends.
Most LTD plans offer 36-month coverage. Although, some plans could provide up to 10 years or even for the life of the policyholder. These insurance policies payout for two, 5, or 10 years. If an employer offers long-term and short-term disability policies through a single provider, that provider would typically payout under the short-term disability plan to its maximum before applying for LTD payments, even if the defined long-term waiting period is shorter.
In the event that an STD insurance policy would not apply, the standard waiting period for LTD policies is three months.
Are There Age Limits To The Long-Term Disability?
If an applicant becomes completely disabled before the age of 60, the long-term disability policy benefits would continue until the applicant recovers or reaches 65 years of age, whichever comes first.
Suppose an applicant acquires a disability after the age of 60 but before the age of 68. In that case, the long-term disability benefits will stop five years after the start of the disability or until the applicant reaches the age of 70, whichever comes first.
Lastly, if a disability starts at 68 years of age or later, the long-term disability insurance benefits would continue for two years.
How Much Does Long-Term Disability Cost?
Typically, employees are expected to pay one to three percent (1% - 3%) of their annual income before tax for a long-term disability insurance plan. This means that if someone has a yearly salary of $45,000, they would have to pay between $450 and $1,350 annually, depending on their insurance policy.
LTD insurance rates vary depending on the applicant's health, age, income, and other factors indicated in an insurance plan. Insurance companies could consider the career field as a factor. Disability insurance quotes dramatically differ between providers, so it is essential to read and get multiple quotes to choose from.
Do You Get a Paycheck on Long-Term Disability?
If you qualified for a long-term disability insurance benefit, you would receive a paycheck containing the amount the plan covered. You would receive monthly paychecks covering between 50 to 80 percent of your "pre-disability earnings," up to a maximum.
Long-term disability benefits pay a percentage of your salary or wages to help you with your financial obligations. You could increase it by including cost-of-living adjustments (COLAs), or it could decrease when offset by other benefits, taxes, and earnings from work.
After knowing what is LTD on a paystub, make sure to keep in mind the aspects of such insurance to understand each policy better. Long-term disability benefits appear as "LTD" on your paystub. For someone with a chronic illness or injury, LTD benefits would go a long way in helping to cover lost salary.
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