Long Term Disability
Group Long term Disability (LTD) is an employer provided benefit that is designed to assist an employee in replacing income lost as a result of a disability. (Once your STD benefits expire (generally after three to six months), the LTD policy pays you a percentage of your salary, usually 50, 60, or 66 2/3 percent. You then receive benefits until you reach age 65.) The method in which most insurance companies use to calculate the percentage of replaceable income usually falls in the range of 60% of gross income. The goal being that the LTD plan is designed to replace a portion of an employees lost income that is close to the employee's after-tax take home pay. The following are some provisions that make up the bulk of a Long term Disability contract.
- Maximum Covered Salary - This is determined by the employer and the total volume of salary of the employees in the company.
- Elimination Period - This is the amount of time that must pass before a disabled employee becomes eligible for benefits. This can be anywhere from 30 to 180 days.
- Duration of Benefits - This represents how long benefits will be payable, i.e. to age 65, or standard retirement age.
- Own Occupation Protection - This feature ensures that if an employee is disabled, and cannot perform the material duties of his or her own occupation that they were trained for--they will still be considered totally disabled. This can be as short as 2 years or as long as standard retirement age (ADEA).
- Conversion Privilege - The policy can be converted to an individual policy if an employee changes jobs.
- Residual Disability - If an employee is disabled and then returns to work, and experiences an earnings loss of 20% or greater, the employee will still receive a benefit to offset this earnings loss.