Basics of Total Rewards

Long-Term Disability Plans

Long-term disability insurance is an income replacement benefit that pays the insured when they are unable to work due to illness or injury (even if injured on vacation). Benefits are paid weekly or monthly and determined at a percentage of the insured's past earnings – normally 60-70%.

Full-time employees generally become eligible for long-term disability insurance plans. In some cases, part-time employees are also covered. Taxation depends on who pays for the premiums. When an employee pays for the premium, these benefits are typically received free of any income tax liability.

In organizations today:

• the most popular plans cover both total and partial disability.
• monthly maximums are common, for example, $10,000/month.
• most companies pay for long-term disability coverage up to a maximum based on a benefit formula.
• group rates may be extended to employees at their cost to procure coverage exceeding the maximum.
• discrimination rules still do not apply to long-term disability plans within the United States. For example, a U.S. company could legally give this benefit only to employees who drive blue cars.