Disability Income and Long-Term Care Insurance
Disability income
Disability income replaces a portion of earned income, typically 60–70%, because replacing all income removes the incentive to return to work. Key terms: elimination period (waiting time before benefits), benefit period, definition of disability, and residual or partial disability. Own-occupation definitions are the most favorable; any-occupation definitions are stricter and often apply after an initial period. Presumptive disability pays without an elimination period for losses such as loss of sight or limbs. Recurrent disability provisions link a relapse to the prior claim. Waiver of premium keeps the policy in force while disabled. Occupational coverage pays only for work-related disability; nonoccupational excludes it. Social insurance offset reduces benefits by amounts received from Social Security or workers' compensation. Business uses include key person disability and business overhead expense.
Long-term care
LTC pays for chronic care: skilled, intermediate, and custodial care in a nursing home, assisted living facility, or at home. Benefits are triggered when the insured cannot perform a specified number of activities of daily living (typically two of six: bathing, dressing, eating, toileting, transferring, continence) or has a cognitive impairment. Features include elimination period, daily or monthly benefit maximum, benefit period, inflation protection, and home-care coverage. Nonforfeiture provisions (contingent or shortened benefit period) protect against lapse. Partnership programs allow asset protection under Medicaid rules.
Rule of thumb
Residual disability example: an insured earning $6,000 monthly earns $3,000 while disabled, a 50% loss of income. With a $4,000 benefit and a proportional residual provision, the payment is 50% × $4,000 = $2,000.