Differences Between Long-Term Care and Disability Insurance

Insurance options can be quite confusing to understand by many. This is especially true when understanding the differences between long-term care insurance and disability insurance.

Both types of insurance help pay expenses when a policy holder becomes too ill to work or care for themselves. Both are often associated with seniors. And, both types can be “guaranteed renewable,” meaning an insurance company can’t drop the policy.

However, there are some important distinctions to understand.

Potato vs. Squash

One way to explain the differences between disability insurance and long-term care policies is to think of yourself as a farmer and the different insurance policies as various vegetables.

Because it is meant to replace or supplement lost income, disability insurance is like the potato – something farmers will plant early in the season to act as filler for stews and casseroles when times are lean. Basically, it replaces income when you become physically unable to work.

Long-term care policies help later in life and can be considered the squash – a staple food that a farmer plants for a late harvest. It pays for a portion of or all the costs of caregiving needed due to a physical or cognitive disability. Long-term care insurance reimburses costs for care received at home, an assisted living facility, or a nursing home.

Replacing a Percentage of Income

Disability insurance, like life insurance, protects future earnings. While health insurance covers the costs associated with severe injuries or illness, without disability insurance, most people are not prepared for the loss of wages that usually follows.

It’s important to know that most disability policies only recover a percentage of a person’s lost wages – typically between 60 to 80 percent. In addition, the payouts decrease in amount when the person’s disability goes from short-term to long-term.

Paying for Nursing Care

Long-term care policies cover the cost of disabilities due to age, illness or injury. This can include paying for care at your residence or in a nursing home. It will pay for room, board and skilled care by health care professionals.

Like disability coverage, long-term care policies generally can only be purchased when a person is healthy. They also vary in eligibility criteria, including the determination of when someone can no longer live independently.

Pre-existing conditions could be grounds for denial for long-term coverage. And so, if you’ll be buying long-term care insurance, it’s best to do so in advance, well before they think they may need coverage.

Policies vary in length of coverage, from a few years to “lifetime.” The typical nursing home stay lasts about three years; therefore, many clients may only wish to purchase a few years’ worth of coverage.

Which One or Both?

Most experts recommend having both types of policies (disability and long-term care coverage). However, you might feel the separate premiums for dual coverage are hard to afford.

For those who lack significant retirement savings and depend on a regular paycheck to support their lifestyles, it’s wise to protect as much of your income as possible with disability insurance.

However, if you have a good pension plan and sufficient income for retirement you might be better off buying long-term care coverage.

Other factors to consider in making this decision are the number of years you expect to live before retirement, your current health and any pre-existing conditions, and whether you can afford the premiums.

Contact Gary to find out more detail – by phone @ 847.719.1300 or click here to contact via web form.

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