Meet John. John has been working at Corporate
Co.’s sunny L.A. office for the past seven years. John loves his job, and thinks he already
has everything he needs, everything from a well-funded 401(k) to great health insurance. However, John is actually missing one thing.
Long-term disability insurance. John is stunned. What on earth is that? Well, like all insurance, long-term disability
insurance reduces the costs associated with a risk, in this case a disability keeping
you from working long-term, in return for a monthly fee called a premium, which is based
on everything from your age to your medical history. Sounds simple enough right? So how does long-term
disability insurance work exactly? Well, in a nutshell, think of it as income-replacement.
Should the worst happen and you find yourself unable to work due to an accident or illness,
unlike health insurance, which only covers the medical bills, long-term disability insurance
will give you cash to compensate your lost work, generally between 40-65% of your salary
tax-free. Pretty great right? Well, John is sceptical. After all, he’s
extremely healthy, what are the odds he’ll suffer a long-term disability? As it turns out, surprisingly high. The Social
Security Administration estimates 1 in 3 Americans entering the workforce today will suffer a
disability of some sort, of which only 5% will be covered by worker’s compensation,
which is an insurance plan that covers accidents or illness caused by your work. This makes
sense, especially when you realize that 90% of long-term disabilities are caused by illnesses
such as cancer. This is where long-term disability insurance
comes in. It covers almost every non-preexisting disability and only costs around 1-4% of your
annual income. This is quite reasonable, especially considering that long-term disabilities last
about 2.5 years on average and can be financially ruinous, even with adequate savings and a
loving family to support you. Hopefully you and John now understand the
basics of long-term disability insurance. Be sure to check out our next video, which
teaches you how to actually get long-term disability insurance, and be sure to check
out our website, where you can find more educational material and free recommendations for great
long-term disability insurance plans.