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Disability Income Insurance, Long Term Care Insurance or Both?
When considering your future, it’s difficult to think about becoming too sick or injured to work, or being unable to live independently. Everyone wants to stay healthy and active, but accidents, illnesses and the effects of aging are a part of life. Fortunately, you can prepare for such events by having a solid plan in place.
Consider Insurance Products for Long Term Planning
If you’re under 65 and working, it’s important to think about how you’d cover your living expenses if an illness or injury left you unable to work for an extended period of time. And no matter your age or employment status, you may want to consider how you’d pay for long term care should you need it, like having a home health aide or living in a nursing home.
Your savings can help with these costs, as can employer-sponsored insurance plans and government programs like Social Security Disability Benefits and Medicaid in some cases. Another option is private insurance. There are several types of insurance to consider we’ll outline two of them to help you understand what each one does and doesn’t cover.
What Disability Income Insurance Does and Doesn’t Cover
When most people think about insurance for a serious injury or illness, they think of disability income insurance. Disability insurance helps replace part of your lost income if you become too sick or hurt and are unable to work for an extended period of time. It may seem unlikely, but just over one in four of today’s 20 year olds will become disabled before reaching retirement age1. If you rely on your employment income to cover your expenses, disability insurance is worth considering.
If you have group long term disability coverage2 through your employer, that’s great. But you still may want to purchase an additional policy to supplement it, since employer-sponsored group plans usually only cover about 60 percent of your regular salary and may exclude commissions and bonuses. Individual disability income insurance is often used to help reduce that gap3.
But there are two key things to remember when it comes to disability insurance. First, even long-term disability policies usually only pay out for five or ten years, or until you’re age 65. Second, disability insurance is only meant to replace a portion of lost income. It doesn’t pay for the additional cost of ongoing long term care. But another kind of insurance may: long term care insurance.
The Purpose of Long Term Care Insurance
Unlike disability insurance, long term care insurance (LTCi) may reimburse you for some or all of the care you need if you are unable to perform everyday activities, called Activities of Daily Living (ADLs). ADLs include eating, getting dressed, bathing, using the bathroom and getting in and out of bed without assistance.
Some LTCi policies only cover care at facilities like nursing homes, assisted living or hospice facilities, while others cover in-home care — including visits from home nurses, home health aides and physical or occupational therapists. However, LTCi generally does not cover traditional medical care expenses or care provided by relatives.
The need for long term care is more common than you might think. Debilitating accidents or illnesses can affect people at any age. And care can be expensive, particularly in areas of the country like the Northeast. It’s not unusual for people to exhaust their savings just to pay for long term care expenses. The point of LTCi is to help to pay for care should you need it, thereby helping you to avoid using up your savings to cover your expenses.
Some people buy LTCi specifically to help ensure their children, spouse or other family members won’t have to pay for all of their long term care — or provide it themselves. While your children may plan to take care of you themselves, life is uncertain and there’s no guarantee they’ll be able to do so when the time comes.
Plan for Peace of Mind.
In a perfect world, you’d never have to stop working because of an illness or injury, and you wouldn’t ever need long term care. But if you do, you’ll be glad you have a plan in place — whether that plan includes disability income insurance, long term care insurance or both.