Long term care vs. long term disability: What's the difference?

Two-thirds of all bankruptcy filings are at least partially caused by medical issues. Those issues, according to a recent study by the American Journal of Public Health, are the high cost of care and missed time at work due to injury or illness.

That’s why insurance is so important. Health insurance helps people cover some of the costs related to medical care. Disability insurance can help people financially in the event they have to miss significant time at work because of health issues.

There’s also another type of insurance you may need to combat the potentially devastating effect of dealing with serious health issues.

Long term care (LTC) insurance covers much of the costs of nursing homes, assisted living facilities or in-home care for when you become unable to care for yourself. These expenses can add up quickly. According to Genworth Financial, the monthly cost of long-term care services in 2018 ranged from $4,000 for assisted living to more than $8,000 for a private room in a nursing home.

The main difference between LTC and LTD

People sometimes confuse long term care insurance and long term disability insurance. Though there are many similarities, the key difference is this:

  • Long term disability insurance replaces a portion of the income you’ll lose if you’re unable to work because of an injury or illness. It pays for your lost income.
  • Long term care insurance helps cover the cost of a nursing home or home health aide if you become unable to care for yourself. It pays for the necessary care facilities.

Below is additional information comparing long-term care vs long-term disability.

When you need LTC vs. LTD

You should have long term disability insurance as soon as you begin earning a full-time income, especially if you have:

  • Dependents that rely on your income.
  • Debt that you will still have to pay in the event of a disability.
  • A high-paying job.
  • A job that requires technical skills that couldn’t be performed with an injury or illness.

About 25 percent of 20-year-olds will become disabled at some point before reaching age 67, according to the Social Security Administration.

Long-term care insurance, on the other hand, typically isn’t necessary at a young age. In fact, according to the American Association for Long-Term Care Insurance (AALTCI), only 4.5 percent of long-term care claims started in 2018 were for people under the age of 70. Over two-thirds of claims began for insureds who were at least 81 years old.

At the same time, you don’t want to wait too long to buy LTC coverage. That’s because 30 percent of applicants between ages 60 and 69 are declined for coverage. And 44 percent of those aged 70 to 79 are denied, according to AALTCI.

What determines the cost of LTC and LTD

The underwriting involved with LTD and LTC insurance is similar.

Both types will strongly consider your age and health status when determining whether you qualify for coverage and what you will pay in premium. The younger and healthier you are, the less you will pay for both. Where you live also helps determine the cost of coverage for both.

LTD policies will also underwrite applicants based on other factors, such as gender, job, and lifestyle attributes. These generally do not factor into underwriting for LTC insurance.

Policy features will also determine your cost for both types.

LTD and LTC insurance enable policyholders to determine how long the policy will pay benefits. The longer the benefit period, the more you will pay in premium.

Both insurance policies also have an elimination period, also known as a waiting period. This is the amount of time between when you require benefits and when the first payment is made. The shorter the waiting period, the more your policies will cost.

Individual long-term care and long-term disability policies also offer optional features, known as riders, that can enhance your coverage. But they will also add to your premium amount.

One major cost difference between the two policy types is that, while LTD insurance premiums remain constant, LTC insurers can raise your premiums after you have purchased the policy. Insurance companies cannot single out just one or a few policies for increases; they must raise the rates of all policies within a specific rate class.

When LTC and LTD benefits are paid

Long term care insurance and long term disability insurance also differ in how and when they payout benefits.

Typically, you qualify for LTC benefits if you are unable to perform several of the activities of daily living (ADL), which include bathing, dressing, eating, walking, and using the bathroom.

Long term care insurance policies will pay benefits in one of two ways:

Expense-incurred policies reimburse policyholders for long term care expenses they incur, up to the maximum benefit amount. The person receiving care will submit claims based on what they have spent.

Indemnity policies pay a set dollar amount regardless of the cost of the service you receive. You will begin receiving insurance payments once you receive long-term care, after the waiting period.

LTD policies pay benefits once an injury or illness prevents or limits your ability to work, following the policy’s waiting period. Whether you can receive benefits will depend greatly on how the policy defines disability. Some policies will pay out a monthly benefit if an injury prevents you from working at your normal job, but allows you to do other types of work that will nonetheless reduce your income. Other policies will not pay benefits if you are able to work in another type of profession, even if you earn less money.

What you receive in benefits is based on a percentage of the pre-disability income you earned while working and what, if any, income you earn following your disability.

Long term care and long term disability insurance are complex products. They require people to spend money they think they don’t have on something they believe they’ll never need. They force people to think about worst-case scenarios. That makes them easy to ignore and hard to buy.

But it’s advisable to own both types of insurance. Otherwise, the cost of these unforeseen but statistically possible events can be financially crippling.


Joel Palmer is a freelance writer and personal finance expert who focuses on the mortgage, insurance, financial services, and technology industries. He spent the first 10 years of his career as a business and financial reporter.

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