No one expects to become so ill or injured that they cannot go to work, but it happens. To make matters harder, the process of qualifying for disability insurance is very difficult, as is maintaining eligibility for disability benefits.
Many people take a very short-sighted approach to long term disability (LTD) insurance, according to NJ.com’s recent post, “LTD insurance explained.” If they are offered LTD as an option, they think they won’t need it and decline coverage or they sign up for the least possible amount of coverage. What people don’t know is that they are more likely to suffer an injury or illness that prevents them from working, than they are of dying prematurely.
LTD insurance is for income-replacement. Most LTD policies provide about 60% of earned income each year from the time of disability through age 65 or until Social Security Retirement Benefits begin. Just signing up for LTD coverage is only half the story. Make sure you understand the exact conditions under which your particular group LTD insurance will pay benefits. Your disability prevents you from working: in your current specific occupation ("Own-Occ"); or in any occupation ("Any-Occ").
Social Security Disability Income (SSDI)
It is quite difficult to qualify for Social Security Disability Income (SSDI). Once benefits begin, maintaining it can also be difficult. Those with a disabled family member who is collecting public assistance for their living expenses want him or her to inherit their assets at their death. However, they also want to be sure that public assistance won’t be interrupted and will continue to provide for their disabled loved one. An inheritance might disqualify the disabled individual from public assistance. They also may worry that they won't be around to support him or her. The solution is to modify their will to include a "Special Needs Trust." This solution accomplishes the following:
- Leaves assets to benefit a disabled loved one to cover extras like a special educational program;
- Ensures that a trusted person will be in charge of those assets;
- Ensures that public assistance received by disabled loved ones will continue to provide for their routine maintenance and support and won’t be affected by inheritance; and
- Eliminates worry about the future subsistence of disabled loved ones.
This is accomplished by going to an estate planning attorney with experience in creating these types of trusts.
Some states are beginning to consider "ABLE Accounts,” which are similar to 529 College Savings Plans. With ABLE Accounts, families can save up to $14,000/year or a maximum of $100,000 before the federal benefits are affected. Five states currently offer their own ABLE account programs.
Anyone whose family depends on their income, and especially people with dependent children, should gain a better understanding of the role that long term disability insurance plays in their financial plan and make sure that they have this important type of insurance protection.
Reference: NJ.com (January 22, 2017) “LTD insurance explained”