Disability Income and Long-Term Care Insurance
Disability income
DI replaces part of earned income, typically 60 to 70 percent. Key definitions: own occupation (paid if unable to perform your own job) versus any occupation (paid only if unable to perform any job for which you are reasonably suited). Also know elimination period (waiting time), benefit period, residual or partial disability, presumptive disability (loss of sight or limbs), recurrent disability, and waiver of premium. Benefits are tax-free when the insured paid premiums with after-tax dollars; employer-paid premiums make benefits taxable. Occupational coverage pays for work-related injury; nonoccupational coverage does not.
Long-term care
LTC pays for help with activities of daily living (bathing, dressing, toileting, transferring, eating, continence) or supervision for cognitive impairment. Benefit triggers are generally two of six ADLs or severe cognitive impairment. Features include a daily or monthly benefit, elimination period (0 to 90 days), benefit period, inflation protection, home care, adult day care, assisted living, respite care, waiver of premium, and nonforfeiture. Tax-qualified contracts receive favorable tax treatment.
Washington note
The WA Cares Fund is a state payroll-funded program (0.58 percent of wages) paying a lifetime benefit that is indexed and currently about 36,500 dollars, with vesting requirements and an exemption path for people holding qualifying private LTC coverage.
Traps
Do not confuse the elimination period with the benefit period, and remember Medicare does not pay for custodial long-term care.
Rule of thumb: two of six ADLs or cognitive impairment equals a covered claim.