Long-Term Disability Insurance Vs. Long-Term Care Insurance

Insurance is all about planning for the "what if's," by protecting yourself and your loved ones, against worst-case scenarios.

As you age, these coverage decisions become more complex — and costly — in order to plan for the possibility that you’ll be unable to work or to take care of yourself (or both) for an extended period of time.

"Just because you're healthy now doesn't mean you can't have something happen to you that's going to require care," says Jonas Roeser, co-founder and CEO of AgentReview.net. "That could mean a month and a half of care after a motorcycle accident or regular help with bathing after the age of 80."

So, if you’re over 50, which should you be buying: a long-term disability insurance policy or a long-term care policy?

First, a shorthand description of each: Long-term disability insurance typically pays 60 percent of your wages, if you are can't work, until age 65, and can be used to supplement Social Security disability payments. Long-term care insurance kicks in — at any age — when you can't perform two of six functions of daily living, such as feeding and dressing yourself.

Insurance experts predictably recommend having both long-term types of policies. But if you can't afford the separate premiums, here’s how to decide which is a smarter choice for you:

Michael Fliegelman, a Long Island, N.Y.-based financial adviser, suggests this metric: "If a person has not accumulated significant money for retirement and his lifestyle is contingent on a paycheck, then protecting income is more important. If someone has a pension plan and sufficient income for retirement, he might want to purchase long-term care coverage."

Both types of policies are sold online and through life insurance agents.

Here are five other factors to keep in mind when weighing the two types of policies:

1. The number of years before you’ll retire  Since private disability coverage typically ends at 65, it's most valuable as a backstop if you have at least 10 to 15 working years ahead of you, according to Jimmy Lee, CEO of the Wealth Consulting Group in Las Vegas, Nev.

"Long-term disability is the most unused type of insurance by Americans yet probably the most important, as it protects someone's most valuable asset — their income," Lee says.

2. Your health  Pre-existing mental and physical conditions could be excluded from long-term disability policies, depending on when they were diagnosed, so it's important to fully disclose your health status during the application process. Similarly, pre-existing conditions could be grounds for denial for long-term coverage; that’s why, if you’ll be buying long-term care insurance, it’s best to do so several decades before you think you may need the coverage.

3. Whether you can afford the premiums  The average long-term care premium costs $2,300 a year, with rates determined by age, health, the length of the policy and the daily payout, among other factors, according to Roeser. The cost of long-term disability premiums varies widely, depending on your occupation, age, gender, health status and other factors; a benchmark is 1 to 3 percent of your annual salary, but lower-cost coverage may be available through an employer or professional association.

Women typically pay more for both types of policies, because they live longer than men and statistically make more claims, Fliegelman says.

Premiums for long-term care coverage can increase over time, but disability premiums usually are fixed for the length of the benefit period if you buy a non-cancelable policy with a level premium stipulation.

“Don't buy insurance if you think you're ever going to have to cancel it,” Roeser says.

4. A hybrid policy or a life insurance policy with a long-term care rider instead of a traditional long-term care policy So-called "hybrid" life insurance policies let you use a death benefit to pay for long-term care coverage while you're alive. Some life insurance policies also have long-term care riders, Fliegelman says.

5. Riders to long-term disability and long-term care policies The riders on disability policies allow for cost of living increases, partial disability coverage and "own occupation" payouts meaning your claim will be processed regardless of whether you can take a job in a different profession. Long-term care insurance riders include ones for cost of living increases, home health care and care in an assisted living facility.