The Difference Between Disability Insurance Coverage & Long Term Care

by Jonathan G. Cameron, CFP®

Although there are many similarities these are two very different kinds of insurance. Disability insurance coverage protects wages lost due to an illness or accident. In contrast, long term care insurance is designed to help cover costs of health care services. Typically, health services are in your home, a nursing home, a rehabilitation center, or an assisted living facility.

Disability Insurance Coverage vs. Long Term Care Insurance

Disability insurance coverage provides replacement for lost wages when you are unable to work. Your ability to earn a living – reflecting your professional education and experience – are what’s insured. Long term care insurance, in contrast, addresses expenses associated with palliative medical care services in your home, a nursing home, a rehabilitation center, or an assisted living facility.

Short vs. Long Term Disability Insurance Coverage

Disability insurance coverage may address either short term or long term income replacement needs. Short term disability policies, generally group coverage obtained through one's employer, cover an injury or illness that is temporary and lasts for less than six months. As the name suggests, long term disability insurance covers an injury or illness that is long term or permanent. It picks up coverage when the short term policy benefits cease. Note: Don’t confuse long term disability insurance coverage with long term care insurance. These are two different things!

Disability Insurance Benefit Period and Definitions

Benefits are paid for a period of years (i.e. 10 year benefit) or until you reach age 65. Policies are not standardized. As the owner and insured you can vary policy elements. The result is that you come up with the best balance of premium and benefits that work for you. These policy elements include the definition of coverage. For example, are you covered for your own occupation or any occupation? Other elements include the daily benefit amount, the benefit period, and a cost of living adjustment to account for future inflation.

Why Should I Have Disability Insurance Coverage?

According to the Social Security Administration, a 20-something worker today has a 30% chance of becoming seriously disabled before reaching retirement. Bottom line – chances are decent you’ll need it during your working life.

What Does Long Term Care Insurance Cover?

Long term care insurance covers the costs of health care services in your home, a nursing home, a rehabilitation center, or an assisted living facility. LTC benefits kick in when the insured cannot perform two out of six activities of daily living. The six activities of daily living (ADLs) are bathing, dressing, transferring, toileting, eating, and continued continence. Loss of wages is not the point of this insurance, unlike disability insurance coverage.

When Should I Buy Long Term Care Insurance?

You can purchase long term care insurance at any time in your life. However, premiums rise with age. Applicants are denied coverage due to preexisting medical conditions, so you can’t buy long term care insurance once you need care. Individuals of any age may receive benefits from a long term care insurance policy, but normally these policies are used by seniors.

These policies were first issued about a generation ago, and they were completely mis-priced by the insurance industry.  Although available now, they have become prohibitively expensive for many people.  A good alternative is a life insurance policy with some good LTC riders.  

Why do many financial experts recommend their clients purchase both disability and long-term care insurance?

Why Should I Buy Long Term Care Insurance?

The costs of a long term illness at any point in life can be devastating. An assisted living facility easily costs $5000 per month in the Miami area, with nursing homes a couple thousand more than that. The point of long term care insurance coverage is to protect a couple’s existing assets in sufficient measure so that the second or surviving spouse can continue to be financially secure.

 Transferring Risk from You to the Insurance Company

Are you in a position to absorb the financial risks of income loss due to disability or a long, debilitating illness? How about your family members? If not, consider insurance to transfer the risk.

For more information on disability insurance coverage and long term care insurance, please feel free to get in touch.  We are licensed to broker both types of insurance in Florida. 

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