Group long-term disability usually replaces 60 percent of predisability earnings, and nearly nine in ten plans cap the monthly benefit, according to the Bureau of Labor Statistics' analysis of private plans. Only about a third of private industry workers have employer LTD at all. For a physician or an executive, the cap, the definition of covered earnings, and the disability definition decide the number rather than the percentage on the benefits summary. Individual carriers set their own issue limits by occupation and income, so an individual policy is priced and sized from the client's facts.
Start with the disability definition
Own-occupation wording focuses on the insured's occupation, but contracts differ in how they define its duties and treat work or earnings in another role. Any-occupation wording generally looks at other work the person is qualified to perform, sometimes with an earnings test.
Some group plans change definitions after a stated claim period. Read the certificate and riders, particularly for specialized work such as medicine. The label on a benefits summary is not enough to establish whether a particular claim qualifies.
Calculate the benefit from covered earnings
Check how the policy treats salary, bonuses, commissions, and business income. Apply its benefit percentage and monthly maximum, then account for offsets and other coverage. Individual issue and participation limits vary by insurer, income, occupation, and existing benefits; there is no universal percentage available to every applicant.
For a hypothetical plan covering 60 percent of $20,000 in monthly salary with a $10,000 cap, the benefit before tax and other offsets is $10,000, not $12,000. If all of that benefit were taxable at an assumed 24 percent effective rate, it would leave $7,600. Those are illustration assumptions, not a tax estimate or coverage offer.
Confirm who paid the premiums
For federal income-tax purposes, benefits attributable to employer-paid or pre-tax premiums are generally taxable. Benefits attributable to premiums the insured paid with after-tax dollars are generally excluded from income. Mixed funding can produce a partly taxable benefit. Confirm the funding arrangement and applicable tax treatment before modeling spendable income.
Match the waiting and benefit periods to the plan
The elimination period is the qualifying waiting period before benefits become payable; payment timing and how qualifying days count also matter. Cash reserves need to cover that interval. The benefit period sets how long an eligible claim can pay, subject to the contract. Compare shorter periods with coverage to a stated age against the client's expected working years.
Compare riders by the problem they address
- Residual or partial disability: may pay when a qualifying disability reduces income or work capacity. Check loss thresholds and calculation rules.
- Future increase option: may allow additional coverage without new medical underwriting, subject to financial eligibility, exercise windows, and other conditions.
- Cost-of-living adjustment: may increase benefits during a claim under the rider's formula; it does not guarantee that benefits match actual inflation.
- Catastrophic benefit: may add benefits for specified severe impairments. Triggers and availability vary.
Separate personal income from business expenses
Business overhead expense coverage, disability buy-sell funding, and key-person disability serve different business needs. They do not replace a review of the owner's personal income coverage. Review them alongside the relevant expenses and agreements.
Bring the group certificate, current individual policies, income breakdown, and available reserves. Also check what happens to each policy when employment changes.
Further reading: the BLS analysis of private long-term disability plans, IRS disability-benefit tax guidance, and Guardian's explanation of disability riders. Carrier examples do not describe every policy.
