The most underappreciated household policy. A 30-year-old is more likely to be disabled for a period than to die during their working years. Long-term disability insurance replaces a portion of income if the household earner cannot work. If your employer offers group LTD, elect it; if it does not, consider an individual policy.
- 01State the probability of disability during a working lifetime.
- 02Distinguish group from individual LTD.
- 03Explain 'own-occupation' versus 'any-occupation' definitions.
The risk
Actuarial tables show that a healthy 30-year-old has roughly a one-in-four chance of a disability lasting three months or longer before retirement age. The financial consequence of an uninsured long disability is more severe than most premature deaths, because the disabled person still consumes.
Group versus individual
Group LTD through an employer is typically cheap and paid with pre-tax dollars, meaning the benefit is taxable. Individual policies are more expensive but portable and, when paid with after-tax dollars, provide tax-free benefits. High-income professionals often supplement group with an individual policy.
The definition matters
'Own-occupation' means the insurer pays if you cannot perform your specific occupation. 'Any-occupation' means the insurer pays only if you cannot perform any occupation. For specialized professionals — surgeons, dentists, pilots — own-occupation is the standard and worth paying for.
- Disability is more likely than premature death.
- Own-occupation is the standard for specialized professionals.
- Group LTD is cheap; elect it.