If you’ve ever held a full-time position, the term ‘disability insurance’ will likely sound familiar as many businesses provide such coverage. Employers often provide either short-term or long-term disability insurance, or sometimes both. Self-employed individuals may have their own individual plans.
Long-term care insurance, or LTC, might also ring a bell, while for some it may be a new term. It’s easy to mistakenly equate the two, thinking they serve the same purpose. Certainly, they share similarities, like two sides of one coin, but they’re distinctly different types of insurance, each designed to cover unique scenarios.
Disability Insurance
Disability insurance, formally known as “disability income”, serves to cover a percentage of your earnings in instances when you’re unable to work. This could be due to recovery from a serious injury or a long-standing illness. Note, however, this doesn’t include workplace injuries – that’s catered for by Worker’s Compensation.
Insurance providers tend to delve into your medical history and also critically examine your current occupation. If your profession is considered risky, you might be labeled a “high risk” candidate for insurance, which could potentially affect your eligibility.
Disability coverage comes in two types:
1) Short-term disability: This plan kicks in to cover your income for a set period, usually activating within 14 days of being injured.
2) Long-term disability: This is similar to short-term coverage, except it usually lasts for a longer duration – this could be 2-5 years, or even stretch till you turn 65, based on the policy details.
Long-Term Care Insurance
While disability insurance substitutes your wage for a period of time during your absence from work, it doesn’t cater for “activities of daily living” (ADL) such as eating, bathing, maintaining continence, among others. This is where long-term care insurance proves essential, stepping in to cover expenses related to services rendered in assisting daily activities. These services are vital for those who, due to aging or chronic illnesses like Parkinson’s or Alzheimer’s, become unable to perform basic functions. Facility options include nursing home care, assisted living, home healthcare, or hospice care. Though typically associated with the elderly, it can be utilized by individuals of any age.
In Conclusion
Though similar in aspects, disability and long-term care insurance differ in purpose and coverage. Disability insurance sustains your income during recovery from an injury but wouldn’t support necessary day-to-day activities. Long-term care plans address this by funding needed services when basic functionality is lost. This safeguards against the risk of burdening loved ones or family members. Therefore, understanding these two types of insurance is essential.
