Explaining the Difference between Long-Term and Short-Term Disability Insurance to Your Clients
Tuesday, March 15, 2016
To your clients, it may seem like there are essentially two options when it comes to disability insurance: long-term or short-term. Of course, we know this isn’t the case, but helping clients understand the distinction requires taking a step back. Start by addressing a couple basic questions:
What is the difference between long- and short-term disability insurance?
The most important thing for your clients to understand is that these are separate insurance policies; short-term disability kicks in first to cover the first few weeks or months after an injury or illness that prevents your client from working. Long-term disability insurance then picks up where short-term ends to cover income if recovery is longer than the initial term.
Individuals can only purchase long-term disability insurance; short-term disability policies are provided by employers. If your client’s employer doesn’t offer short-term disability insurance, they should be advised to set aside enough savings to cover a similar period on their own.
The takeaway: There is no over-lap. If you work, you need both short- and long-term disability insurance.
How much does long-term disability insurance cost?
Long-term disability insurance provides better protection than short-term and can be tailored to each person’s particular situation. Depending on your client’s occupation, age, plan type, and desired coverage period, they can expect to pay between 1 – 3% of their salary.
How long do long-term disability plans pay out?
Long-term disability insurance plans can pay out until retirement or just a few years, depending on the policy specifics. Short-term plans, on the other hand, pay out for 30 to 120 days.
If I have short-term DI, why do I also need long-term?
Roughly 25% of American workers will be unable to work for an extended period due to disability at some point in their career. It’s possible for many workers to cover lost income for as long as 60 days, but when it comes to many months or years, it’s nearly impossible. Unless, of course, they are adequately insured.
What about Social Security? Won’t that cover me?
Social Security disability payments are much harder to get than people realize. The approval process is long and arduous, and many people are never approved. Even if all goes well, it can take as long as a year or more to start receiving payments.
Undoubtedly you know all of this like the back of your hand already, but your clients don’t think about the benefits of DI as often you do. Which is why it’s a great practice to start with the basics when explaining the income protection provided by long-term disability insurance coverage.
Call our office anytime with questions about selling long-term disability insurance to your clients. We’re always happy to help.