Percentage of Your Pre-Disability Income

Long term disability benefits are generally calculated as a percentage of your pre-disability income. The exact percentage can vary depending on your policy and insurer, but it typically ranges from 50% to 70% of your regular income before you became disabled.

• Example: If you earned $5,000 per month before becoming disabled, and your policy covers 60% of your income, your monthly LTD benefit would be $3,000.

Policy Limits and Caps

While the percentage of your income is important, your long term disability policy may have maximum benefit caps, which limit how much you can receive regardless of your income level.

• Maximum Monthly Benefit: Some policies may have a cap, such as $5,000 or $10,000 per month, which means that even if you earned more, your benefit will not exceed the policy’s maximum amount.
• Example: If your policy offers 60% of your pre-disability income and your monthly salary was $8,000, you would normally be eligible for $4,800 in benefits. However, if your policy has a cap of $5,000, your benefit would be limited to that amount, even though you would be entitled to more based on the percentage.

Waiting Period and Benefit Duration

Long term disability benefits typically begin after a waiting or elimination period, which is the time between when you become disabled and when you start receiving benefits. This period often ranges from 30 to 180 days, depending on your policy.

• Short-Term Disability vs. Long-Term Disability: During the waiting period, you might be covered by short-term disability (STD), which provides benefits for a limited time, typically up to 6 months. Once the STD benefits end, long-term disability kicks in.
• Benefit Duration: LTD benefits can last anywhere from a few years to until retirement age (usually age 65). The duration depends on the specifics of your policy and whether you remain unable to work due to a disability.

Taxability of Long Term Disability Benefits

Whether or not your long term disability benefits are taxable depends on how you paid for the insurance. If your employer paid the premiums and didn’t deduct them from your pre-tax income, the benefits may be taxable. If you paid the premiums with after-tax dollars, your benefits will typically be tax-free.

• Taxable Benefits: If the insurance premiums were paid by your employer and they were tax-deductible to you, your LTD benefits will generally be subject to income tax.
• Non-Taxable Benefits: If you paid the insurance premiums with after-tax dollars, you will likely receive tax-free benefits.

Other Sources of Income and LTD Benefits

If you are receiving other sources of income (such as Social Security Disability Insurance (SSDI), workers’ compensation, or other benefits), these payments may affect the amount of long term disability benefits you receive. Some LTD policies have a "coordination of benefits" clause, which reduces your LTD benefit amount if you are receiving other disability benefits.

• Example: If you are receiving $1,000 in SSDI benefits, your LTD policy might reduce your monthly benefit by that amount to avoid you receiving more than 100% of your pre-disability income.

Step 6: How to Maximize Your Long-Term Disability Benefits

Here are some tips for maximizing your LTD benefits:

• Review Your Policy: Understand the terms of your LTD policy, including the benefit percentage, waiting period, maximum payout, and any exclusions.
• File on Time: Make sure to file your claim as soon as possible and provide all required documentation to avoid delays in receiving your benefits.
• Maintain Regular Medical Visits: Consistent medical records are crucial to showing the severity of your condition and supporting your disability claim.
• Check Other Benefits: Be aware of other disability benefits, such as SSDI, that may supplement your LTD benefits and ensure you are receiving all eligible support.