According to the May 2000 Norton Bankruptcy Adviser, 326,441 families that filed for bankruptcy protection in 1999 identified an extended illness or serious injury as the major reason for the bankruptcy. That means 1 in 4 debtors in 1999 attributed their financial hardships to a disability.

Long Term Disability: Are you taking a chance?

There are three basic disability plans. The first, Social Security Disability is the best known; many people mistakenly assume that it will provide a sufficient income if a person becomes disabled. It won't! For one thing, it takes an average of two years and up to four appeals before SS disability is approved. And, if you are caught doing anything that gives you a little extra cash, your disability check can be cut or eliminated altogether.

The second form of disability income is Group Disability, provided for employees of large companies. Usually a company that can afford to do so will have short term disability and long term disability. A portion of the premium may come out of your paycheck each month. A group short term disability insurance pays anywhere from a week to perhaps a month or two and is often tied in with "sick leave." If you needed surgery from which you expected to return to work in just a couple of weeks, you would collect short term disability. Group Long Term Disability replaces a portion of your paycheck for a longer period of time—usually about two years. A very few companies will continue the disability pay for a vested employee until such time as the employee is old enough to begin drawing Social Security. If a company closes or gets bought up, the Disability contracts are often among the first benefits to be terminated.

Individual Long Term Disability is a policy you own. If you become unable to perform your job for longer than 60 or 90 days (depending on the terms of the contract), you would collect a percentage of your income, and, usually, your premium would be waived. If the benefit is tax free, 80% of your original pay would be enough to pay your bills and maintain some semblance of your life style. All in all, it is usually a much more dependable way to protect your home and family.
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Long term disability insurance is not Long Term Care Insurance. People often confuse the two. Disability insurance replaces your income, giving you a check to buy groceries and pay your bills. LTCi (as it is commonly referred to) is a type of insurance that pays the care givers should you ever need nursing home or extended home care for any condition that limits your daily activities or involves a cognitive impairment.