Demystifying Long Term Care Insurance: The Difference Between Long Term Care and Disability Insurance
Chances are, if you’re reading this article, someone has tried to convince you to buy a long term care policy. They’ve likely shown you how much money you could stand to lose if you or your spouse ends up needing long term care. And maybe those numbers are a little scary. In fact, purchasing a long term care policy is starting to look pretty good.
But what if you already have disability insurance?
#1 Difference Between Long Term Care and Disability Insurance: When You Use Them
Long term care insurance and disability insurance have the same basic aim; they help you protect your assets when your health falters. Beyond that, though, these two kinds of insurance are actually quite different.
The biggest difference is that they are used in very different situations. Disability insurance kicks in whenever you have an injury that prevents you from working. It’s meant to replace wages you would lose by being away from your job. The insurance can be long term or short term. Short term disability insurance typically lasts a few months. Long term disability insurance may last until social security payments begin.
Long term care insurance, on the other hand, starts paying whenever your doctor decides you are unable to do two out of six “activities of daily living” whether you are working or not. The activities of daily living, or ADLs, include eating, bathing, getting dressed, toileting, transferring, and continence. Long term plans are customizable, so payments might happen for three years, 10 years, or for as long as you need them.
#2 Difference Between Long Term Care and Disability Insurance: What They Pay and How You Can Spend the Money
Long term disability insurance typically pays 50 to 60% of your missed wages. So if you make $50,000 a year at your job, you can expect your long term disability insurance to pay out $25,000 per year. Checks are typically distributed monthly and you can spend the money however you choose.
Long term care insurance payments, on the other hand, can vary greatly. Policies with higher premiums pay more and those with lower premiums pay less. Payments could potentially be higher than what you might get through disability insurance. Also, unlike disability checks, long term care insurance money must be used for specific things, usually expenses accrued in nursing homes or professional in home care situations.
#3 Difference Between Long Term Care and Disability Insurance: Who Pays for Them
The majority of long and short term disability insurance policies are fully or partially paid by employers. This has the benefit of making disability insurance relatively cheap for most people. Most of the time, any premiums you pay will be deducted automatically from your paycheck.
Long term care insurance is most often paid for entirely by the insured individual or their family making it more expensive than disability insurance. Premiums for long term care insurance can often be paid in one lump sum or monthly.
So Do I Need Both?
Many insurance experts and agents claim that just about everyone should have both disability insurance and long term care insurance. The truth, however, is that this isn’t always the case.
If you are currently of working age, haven’t saved significantly for retirement, and depend on your income, versus investments, to pay for your living expenses, then disability insurance should be your priority. In this situation, your income is your most valuable resource and the foundation of your financial health and you should protect it first.
If you have a healthy portfolio of investments and feel secure in your ability to live comfortably regardless of employment income, however, long term care insurance can be a very good idea. It protects your hard-earned savings against expensive long term care later in life. It also takes pressure off family members who may or may not be able to care for you if your health fails.
If you are unsure about your long term and disability insurance options and haven’t been in touch with your financial planner or advisor lately it might be a good time to contact that person. Or, if you don’t have a financial planner or advisor, you might consider finding one in your area who can help you work through your situation.
David Wilson is a Certified Financial Planner® and Accredited Investment Fiduciary Analyst® at Vector Financial Solutions and the author of this blog. He has spent the last 30 years helping people in the greater San Diego area accomplish their financial goals and envision their best financial future. Call 760-741-3159 or email to get touch.
David Wilson, writer at Financial Truths, is also a financial advisor and Certified Financial Planner® and Accredited Investment Fiduciary Analyst® at Vector Financial Solutions, Inc. Vector Financial Solutions is located at 139 E. 3rd Ave., Escondido, CA 92025 and by phone at 760-741-3159.
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