Long-Term Disability (LTD)

A comprehensive long-term disability income policy — A comprehensive long-term disability income policy is designed to replace a substantial portion of the insured's earned income during long periods of total or residual disability and is not a limited-benefit product. Credit disability, hospital confinement indemnity, and specified disease policies are all classic limited-benefit products: they pay fixed, contract-stated amounts for narrow events rather than replacing lost income or reimbursing broad medical expenses. Distinguishing comprehensive from limited coverage is a core classification skill in accident and health insurance.

National insurance concept

Taxable as ordinary income to the employee because the employer paid the premiums — The tax treatment of disability benefits follows the source of the premium dollars. When the employer pays the full premium for a group disability policy, the employer's payments are not included in the employee's income at the time of payment, but any benefits the employee later receives are taxable as ordinary income. If the employee had paid the premiums with after-tax dollars, the benefits would be tax-free; if the premiums were split, the benefit is taxable in proportion to the employer's share. This premium-source rule is the controlling principle for disability benefit taxation.

National insurance concept