Long-Term Disability Calculator
Estimate long-term disability insurance benefits, premiums, and coverage needs based on your income, occupation, and policy features. Plan for income protection if you become disabled.
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About This Calculator
Long-term disability (LTD) insurance replaces a portion of your income if illness or injury prevents you from working for an extended period. Unlike workers' compensation, LTD covers disabilities that occur both on and off the job. With 1 in 4 workers becoming disabled before retirement, disability insurance is a critical component of financial planning.
Why Long-Term Disability Insurance Matters:
- 25% of 20-year-olds will become disabled before retirement
- Average disability lasts 34.6 months (nearly 3 years)
- Social Security Disability rejects 65% of initial claims
- Most people have no disability coverage outside of work
What LTD Insurance Covers:
- Illnesses (cancer, heart disease, mental health)
- Injuries (accidents, falls, back problems)
- Musculoskeletal conditions (most common claims)
- Pregnancy complications (some policies)
- Chronic conditions that worsen over time
Group vs. Individual Policies:
- Group (Employer): Lower cost, may be free, taxable benefits, limited coverage
- Individual: Higher cost, portable, tax-free benefits, stronger coverage
Key Policy Features:
- Benefit percentage (typically 60% of income)
- Definition of disability (own occupation vs. any occupation)
- Elimination period (waiting period)
- Benefit period (how long benefits last)
- Riders (COLA, residual, future increase)
This calculator helps estimate disability insurance costs and benefits. For workplace injuries, see our Workers' Comp Calculator. For retirement planning, visit our Social Security Calculator.
How to Use the Long-Term Disability Calculator
- 1Enter your annual income to calculate potential benefit amounts.
- 2Input your current age (affects premium rates significantly).
- 3Select your occupation class based on job risk level.
- 4Choose your preferred elimination (waiting) period.
- 5Select how long you want benefits to last (benefit period).
- 6Choose the definition of disability that fits your needs.
- 7Indicate if coverage is through employer or individual policy.
- 8Select optional riders for enhanced coverage.
- 9Review estimated premiums and potential benefits.
- 10Compare group and individual policy options.
Understanding LTD Insurance
Long-term disability insurance provides income replacement when you cannot work.
How LTD Insurance Works
The Basics:
- You become disabled and cannot work
- You satisfy the elimination (waiting) period
- You file a claim with documentation
- Insurance pays monthly benefits
- Benefits continue until recovery or benefit period ends
Typical Coverage Structure
| Component | Standard Terms |
|---|---|
| Benefit Amount | 60% of pre-disability income |
| Monthly Maximum | $10,000-$15,000 |
| Elimination Period | 90 days |
| Benefit Period | To age 65 |
| Taxability | Tax-free if you pay premiums |
Group vs. Individual LTD
| Feature | Group (Employer) | Individual |
|---|---|---|
| Cost | Often free or subsidized | You pay full premium |
| Portability | Lose when you leave job | Stays with you |
| Tax on Benefits | Taxable (if employer pays) | Tax-free |
| Own Occupation | Rare | Common |
| Monthly Maximum | $5,000-$10,000 | $10,000-$25,000 |
| Underwriting | Simplified | Full medical |
Why You Need Both
Many financial advisors recommend:
- Accept employer group coverage (often free)
- Supplement with individual policy
- Individual policy fills gaps in group coverage
- Ensures portability if you change jobs
Definition of Disability
The definition of disability is the most important policy feature.
Own Occupation Definition
How It Works:
- Disabled if you cannot perform YOUR specific job
- Can work in another field and still collect benefits
- Most favorable definition for the insured
- Typically higher premiums
Example: A surgeon who injures their hand cannot perform surgery but could teach. Under own occupation, they receive full benefits while teaching.
Any Occupation Definition
How It Works:
- Disabled only if you cannot work ANY job
- Must be unable to do work you're qualified for
- Less expensive premiums
- Harder to qualify for benefits
Example: The same surgeon would not receive benefits if capable of teaching, as they can work "any occupation."
Split/Transitional Definition
How It Works:
- Own occupation for first 2-5 years
- Transitions to any occupation after
- Compromise between cost and coverage
- Most common in group policies
Definition Comparison
| Definition | Premium Cost | Benefit Qualification |
|---|---|---|
| True Own Occ | Highest (+20-30%) | Easiest |
| Modified Own Occ | Moderate | Moderate |
| Transitional | Moderate | Easy then harder |
| Any Occupation | Lowest | Most difficult |
Occupation Classes
Insurers classify occupations by risk:
| Class | Description | Examples |
|---|---|---|
| 6A/5A | Lowest risk | Executives, doctors, lawyers |
| 4A | Low risk | Engineers, accountants, managers |
| 3A | Moderate | Teachers, nurses, sales reps |
| 2A | Higher risk | Mechanics, technicians |
| 1A | Highest risk | Construction, manufacturing |
Key Policy Provisions
Understanding policy provisions helps you choose the right coverage.
Elimination Period
What It Is: Waiting period before benefits begin (like a deductible in time).
| Period | Premium Impact | Best For |
|---|---|---|
| 30 days | +30-40% | Those with little savings |
| 60 days | +10-15% | Moderate savings |
| 90 days | Base rate | Most common choice |
| 180 days | -15-20% | Significant savings |
| 365 days | -25-35% | High net worth |
Strategy: Coordinate with short-term disability or savings to bridge the gap.
Benefit Period
Options:
| Period | Coverage | Premium Impact |
|---|---|---|
| 2 years | Limited | -35-45% |
| 5 years | Moderate | -15-25% |
| To age 65 | Full career | Base rate |
| To age 67 | Extended | +5-10% |
| Lifetime | Maximum | +15-25% |
Recommendation: To age 65 is standard; lifetime is valuable for young purchasers.
Benefit Amount
Typical Coverage:
- 60% of gross income standard
- Some policies offer 70% with riders
- Monthly maximums apply ($10K-$25K)
- Bonuses/commissions may have separate limits
Non-Cancelable vs. Guaranteed Renewable
| Type | Premiums | Renewal |
|---|---|---|
| Non-Cancelable | Locked (cannot increase) | Guaranteed |
| Guaranteed Renewable | Can increase by class | Guaranteed |
Recommendation: Non-cancelable provides certainty but costs more.
Important Riders and Options
Riders enhance your disability policy's coverage.
Cost of Living Adjustment (COLA)
What It Does:
- Increases benefits during disability
- Typically 3% simple or compound
- Protects against inflation
Cost: Adds 20-30% to premium
Worth It If: You're young and might be disabled for many years.
Residual/Partial Disability Rider
What It Does:
- Pays proportional benefits for partial disability
- Covers loss of income even if working
- Essential for income-sensitive professions
Example: Doctor returns part-time, earns 50% of previous income. Residual rider pays 50% of benefit.
Cost: Adds 10-20% to premium
Recommendation: Highly recommended for most policies.
Future Increase Option (FIO)
What It Does:
- Buy more coverage later without medical exam
- Usually at life events (marriage, income increase)
- Protects insurability
Cost: Adds 5-15% to premium
Worth It If: You're young, income will grow, health might change.
Own Occupation Rider
What It Does:
- Adds true own occupation definition
- Can work elsewhere and collect full benefits
- Critical for specialized professionals
Cost: Adds 15-25% to premium
Mental/Nervous Disorder Rider
What It Does:
- Extends mental health benefit period
- Standard policies limit to 24 months
- Critical given prevalence of mental health claims
Calculating Your Coverage Needs
Determine how much disability insurance you actually need.
The 60% Standard Explained
Why 60%?
- After taxes, 60% of gross ≈ 80-90% of net pay
- Employer-paid benefits are taxable
- Individual policy benefits are tax-free
If Employer Pays Premium: $100,000 income × 60% = $60,000 benefit $60,000 - taxes (22%) = $46,800 net
If You Pay Premium: $100,000 income × 60% = $60,000 benefit $60,000 tax-free = $60,000 net
Supplementing Group Coverage
| Income | Group Benefit | Gap | Individual Supplement |
|---|---|---|---|
| $100K | $5K/mo (taxed) | $1,500/mo | $1,500-2,000/mo |
| $150K | $5K/mo (taxed) | $4,000/mo | $4,000-5,000/mo |
| $200K | $5K/mo (taxed) | $6,500/mo | $5,000-7,000/mo |
Coverage Calculation
Step 1: Calculate monthly expenses
- Housing: $2,000
- Utilities: $300
- Food: $600
- Insurance: $500
- Transportation: $400
- Other: $500
- Total: $4,300/month needed
Step 2: Subtract other income sources
- Spouse income: $2,000
- Group LTD (after tax): $2,000
- Gap: $300/month
Step 3: Add individual policy for gap plus cushion
Income Verification
Insurers verify income through:
- Tax returns (most recent 2-3 years)
- W-2s or 1099s
- Business financial statements
- Pay stubs
Tax Implications of LTD Benefits
Tax treatment depends on who pays the premiums.
Premium Payment and Benefit Taxation
| Who Pays Premium | Premiums Deductible? | Benefits Taxable? |
|---|---|---|
| Employer | No (excluded from income) | Yes, fully taxable |
| Employee (pre-tax) | Yes, tax-free payroll | Yes, fully taxable |
| Employee (post-tax) | No | No, tax-free |
| Self-employed | No (personal expense) | No, tax-free |
Example Scenarios
Employer-Paid Policy:
- Monthly benefit: $5,000
- Federal tax (22%): -$1,100
- State tax (5%): -$250
- Net benefit: $3,650
Employee-Paid (Post-Tax) Policy:
- Monthly benefit: $5,000
- Taxes: $0
- Net benefit: $5,000
Effective Coverage Comparison
To achieve $5,000/month net benefit:
| Payment Method | Required Gross Benefit |
|---|---|
| Tax-free (you pay) | $5,000 |
| Taxable (employer pays) | $6,850 |
S-Corporation Owner Considerations
Special Rules:
- If S-Corp pays premium, benefits are taxable
- Pay premiums personally for tax-free benefits
- Can take higher salary to compensate
Business Overhead Expense Insurance
For Business Owners:
- Covers business expenses during disability
- Rent, utilities, employee salaries, etc.
- Premiums are deductible
- Benefits are taxable (but offset by deductible expenses)
Pro Tips
- 💡Get individual coverage when young and healthy - rates are locked in.
- 💡Always choose "own occupation" definition if you have specialized skills.
- 💡A 90-day elimination period balances premium cost with reasonable risk.
- 💡Benefits to age 65 provide the most comprehensive protection.
- 💡Add a residual/partial disability rider - most returns to work are gradual.
- 💡If employer provides LTD, supplement with individual policy for portability.
- 💡Pay premiums with after-tax dollars to receive tax-free benefits.
- 💡COLA rider is valuable for younger buyers who may be disabled longer.
- 💡Consider Future Increase Option if your income will grow significantly.
- 💡Review coverage annually and update as income and circumstances change.
- 💡Non-cancelable policies guarantee rates cannot increase.
- 💡Coordinate short-term and long-term disability for complete coverage.
Frequently Asked Questions
Typical LTD premiums are 1-3% of your annual income. A 35-year-old office professional earning $75,000 might pay $750-$2,000 annually for individual coverage. Group coverage through employers is often free or heavily subsidized. Factors affecting cost include age, occupation, health, and policy features.
