While both life and long-term disability insurance are designed to provide income protection, they are two separate policy types with payouts that are triggered by different circumstances. However, there are certain riders that can be added to a life insurance policy that may be able to help in certain instances in the event you become seriously ill or disabled. Here, we explain the difference between the two policies, as well as disability riders.
With long-term disability, your income is protected while you are still alive. If you were to become seriously ill and your new disability prevents you from working and earning an income, a long-term disability policy will make benefit payments directly to you while you are unable to work. Therefore, for disability payments to be distributed, the policyholder must remain alive.
With a life insurance policy, the death benefit is paid to your beneficiaries to help replace some of your lost income upon your death. Life insurance does not cover long-term disability because for the death benefit to be paid, the policy holder must be deceased. However, most life insurance policies have optional riders that can be added when purchasing a policy that hinge upon disabling medical conditions. They can include the accelerated death benefit rider and the waiver of premium rider.
The accelerated death benefit rider allows you, as the policyholder, to use all or a portion of the policy death benefit for various expenses in the event you are diagnosed with a chronic, disabling, or terminal illness. If you've been diagnosed with a certain disease or are suffering from an illness that significantly affects the quality of your life (such as not being able to work), the insurer will pay out the benefit prior to your death to help replace your lost income.
During a period of disability, it may become difficult to keep a life insurance policy in force. If you were to become totally disabled, unable to work, and couldn't afford to pay your life insurance premiums, the waiver of premium rider could allow you to stop making your premium payments while continuing to keep your policy in force until you are able to return to work fulltime. It ensures that your policy remains in force while you are unable to work - a better choice than allowing your policy to lapse due to temporary financial challenges. Your life insurance policy remains in force - just as if you were making premium payments yourself.
Protecting your income is important. For this reason, you may want to consider a life insurance policy with the appropriate riders, as well as coverage for long-term disability.