Long-term disability income insurance in the United States, popularly called “LTD,” aims to replace a percentage of the income an individual was earning prior to becoming disabled. The public “safety net” for disabled individuals in the United States tends to have somewhat broader gaps than in many other wealthy nations, so private types of long-term disability insurance play a significant role here. However, global variations in LTD insurance demonstrate that private and public-private options remain important in many countries. A brief overview of some international long-term disability policy differences may help you to gain a broader perspective on LTD coverage around the world, and suggest insights you may want to use as you explore your own options for disability insurance coverage.
What Does LTD Mean in Insurance?
In the American insurance industry, LTD stands for “long-term disability income insurance.” This is a type of insurance that is intended to replace a portion of an individual’s pre-disability income if he or she suffers an illness or accident that makes it necessary to leave the workplace for an extended period of time, usually several months to years. LTD policies may replace as little as half of an individual’s pre-disability income, or as much as 90% of what the person is earning at the time their condition forces them to leave work.
Private vs. Public Systems for Disability Insurance
Although there is some justification for the common complaint that the United States lacks a national “safety net” to provide financial support and basic healthcare to residents of the country who become disabled due to illness or injury, it is perhaps more accurate to say that our public services in this area are rather sparse, compared with those of other wealthy nations. Technically we do have two public systems of income support for individuals who are not of an age to retire, but who are also not able to work: Social Security Disability Income Insurance (SSDI) and Supplemental Security Income (SSI). SSDI eligibility is unfortunately based not just on a notoriously narrow determination of disability, but also on the applicant’s work history, as SSDI benefits are paid out of the federal tax dollars to which each individual has contributed through his or her time in the workforce. SSI is not based on work history, but requires strict “means testing” to ensure that only those who are truly unable to cobble together the resources necessary for basic survival receive any assistance.
One implication of the relatively limited social welfare system in the United States is that it creates a significant market for private disability income insurance. “Private” in this context simply means that the insurance is not funded by tax dollars and managed by the states or by the federal government. This meaning of private is important to note, as it can sometimes be confused with another distinction between different types of LTD: group vs. individual long-term disability.
Global Variations in LTD Insurance: Group vs. Individual Disability Policies in the American System
Just as the dominant means for Americans to gain access to medical care is through employee benefits, the most common LTD arrangement in this country is group plan disability insurance, with premium rates negotiated between the employer and the insurance company. Typically in these situations the employer pays some or all of the policy premiums, as well. How these benefits are paid can have significant tax implications for employees, so staying alert to the payment structure for LTD premiums and any options they may have for influencing whether those premiums are paid with before tax vs. after tax dollars is an important consideration for American employees offered LTD.
The other major American entry in the category of global variations in LTD insurance is the purchase of an individual policy, directly from an insurance company. Sometimes even individuals who do have disability insurance through their employers will purchase personal supplementary coverage or policy riders to enhance or expand the coverage offered under their employer-sponsored plans. Common reasons for this type of personal insurance addition include a desire for own occupation coverage instead of simply any occupation coverage, a concern about the duration of the policy maximum benefit period, and a need to make sure the policy will cover a percentage of pre-disability income sufficient to either maintain the individual’s standard of living or facilitate a transition period to mitigate financial risks while the household is “downsizing” in response to the reduced income.
Global Variations on LTD Insurance: European Approaches
The countries that make up the European Union have a wider variety of approaches to long-term disability income replacements than many in the United States might be inclined to think. The fact that our national norms do contrast in relatively predictable ways with most European systems does lend itself to an oversimplified view in which shared international long-term disability policy differences from the United States are weighted with greater significance than the differences between those systems. The facts on the ground are, of course, always more complex. Taking a look at a few prominent systems may make it easier to get an idea of the breadth of diversity in LTD coverage around the world.
Types of Long-Term Disability Insurance: Germany’s Public-Private Model
Income replacement for long-term disability in Germany tends to rely heavily on an individual’s work history, not unlike the SSDI system in the United States. German citizens also frequently purchase private long-term disability policies, and for much the same reason as their American counterparts: The benefits provided under state-issued disability pensions are in many cases not enough to realistically enable independent living.
At the same time, Germany’s model does differ from that of the United States in a few key ways. One of the most notable is that the German version allows for disability benefits to be awarded in different amounts, calibrated by an individual’s medically assessed degree of disability. These degrees are more similar to the structures found in many American workers’ compensation programs than they are to the American system for veterans’ disability benefits: Germany separates disability benefit recipients into those who are partially disabled vs. those who are totally disabled, rather than categorizing them into a larger number of groups differentiated by percentage of working capacity lost. The “total” disability category also differs from the “totally disabled” requirement for SSDI eligibility in that Germany uses a threshold of working-hours per week to make the determination, whereas the United States Social Security Administration (SSA) makes the determination based on an annually-updated earned income amount that constitutes “substantial gainful activity.”
Types of Long-Term Disability Insurance: Life, Death, and Disability in France
In France, disability income replacement is folded into a type of life insurance policy. Employers are legally required to take out group life insurance plans for certain types of employees, and often the employer assumes the bulk of the cost of premiums in the process. As is relatively common in Europe, the French system uses group “death and disability” insurance as a type of supplement to another plan, which in France would come by way of basic health insurance.
LTD Coverage Around the World: Lessons From International Long-Term Disability Policy Differences
One point these comparisons among global long-term disability insurance variations throw into relief is that there is tremendous variability not just in the types of conditions covered and the strategies by which benefits are funded, but in the types of insurance that are perceived as related. In the United States, LTD is so far removed from health insurance that leaving work for disability typically causes the employee to lose his or her health insurance coverage. In France, leaving work due to disability is so much a health issue that disability benefits are sometimes framed as a follow-up to employee sick leave. In Germany, the interlocking types of insurance create a complex system, but often disability income is closely related to the mandatory jointly-funded pensions that otherwise provide for an employee’s retirement.
Can I Live in Mexico While on Long-Term Disability?
Long-term disability income insurance policies do not typically impose specific requirements on LTD recipients’ travel or even long-term relocation options. However, many LTD policies do have extremely specific renewal requirements. Often these periodic renewals have correspondingly strict specifications regarding the types and sources of medical documentation the insurance company will treat as valid, as well as the timeline and protocols for submission. Your long-term disability insurance company may also require you to attend another independent medical examination (IME) as part of the benefit renewal process, similar to the examination you most likely attended during your initial application for LTD benefits.
The IME is the piece that most obviously poses a risk of conflict with your plans to relocate to another country, but any aspect of your removal that interferes with your ability to meet the insurance company’s ongoing documentation requirements has the potential to result in a termination of benefits for non-compliance. Before putting plans in place for a move abroad, therefore, you may wish to review the terms of your policy with a disability attorney and develop a comprehensive plan for ensuring your continued compliance with all of the insurance company’s requirements for maintaining your benefit payments, so that your source of income is not prematurely suspended.
What Does GSI Mean in Insurance?
GSI stands for Guaranteed Standard Issue. GSI insurance functions as a supplement of sorts to more basic disability income (DI) insurance, and can be particularly valuable for individuals who will have to be out of work for an extended period, as the longer an individual suffers income reduction due to the disparity between their pre-disability salary and the percentage of that former income replaced by LTD benefits, the more devastating the financial consequences of that gap are likely to be.
LTD and Long-Term Financial Consequences
One of those consequences reveals some of the contextual global variations in LTD insurance. Nothing happens in a vacuum. Being out of work for an extended period, possibly for years, has effects not just on an individual’s access to immediate resources, but on their ability to prepare for the future. The drop in income that often comes with long-term disability benefits under a standard group plan often severely restricts an American’s ability to save for retirement. The United States has relatively lower income protections for disabled retirees than many other wealthy nations do, and so the long-term outcomes of some of the most common types of disability insurance in this country tend to diverge from those of many counterparts.
Purpose of GSI
GSI disability insurance helps to partially close the gap between LTD benefits and an individual’s full pre-disability income. Depending on the long-term disability policy involved, that gap can sometimes be substantial, and closing can make saving a portion of monthly benefits a much more realistic possibility for many individuals.
Another often-touted benefit of GSI is that the medical exams needed both for initial enrollment and for approval of benefits tend to be less demanding. Some policies actually allow individuals to enroll with little to no medical examination, although there may be a “look-back” period for pre-existing conditions, common to most long-term disability insurance policies. GSI policies also frequently provide for “own occupation” definitions of disability that may be extremely helpful for individuals leaving high-earning positions who may be able to do some work but who are unlikely to find a second career that will restore their standard of living.
Types of Long-Term Disability Insurance: Understanding The Options
Global variations in LTD insurance cover a wide range of approaches. International long-term disability policy differences reflect both the material circumstances and the cultural expectations that prevail in the areas where they are implemented. Private LTD coverage around the world takes on greater and lesser roles in securing income replacement for disabled individuals, depending on how heavily local systems lean into the publicly funded options for ensuring that disabled residents are able to maintain the basic necessities of survival. If you are reviewing types of long-term disability insurance worldwide in hopes of understanding what your options may be if you decide to move to another country, you may also wish to consider the feasibility of maintaining your current LTD policy during a move, especially if you are already receiving disability benefit payments.
