Premiums, Taxes and Fees…What you Need to Pay Now, and after LTD Payments begin; and What you Might Expect to Owe the IRS

Warning: Financial Planners

Important Information for Financial Planners : Long Term Disability from Ray Bourhis on Vimeo.

Premiums with LTD policies are usually fixed for the life of the policy.

Once a claim is approved, a Waiver of Premium provision that exists in most policies is triggered and it is no longer necessary for the insured to pay continuing premiums, for as long as the disability continues.  But what if the claim is denied and the premiums are not being paid? What if the claim is approved, but conditioned to some limitation? What if it is approved subject to a Reservation of Rights?

Suffice it to say that these are important issues and they cannot be overlooked.

Taxes

What income is your tax based on after LTD benefits commence?

You should consult with your accountant on this, but basically, if you paid your disability premiums with after tax dollars, your benefits should be tax free.

Offsets

Some LTD policies attempt to deduct from your payments based on other benefits you are receiving or are entitled to receive. These other benefits might include such things as Social Security Disability Benefits, third party tort recoveries and other income.  The effect of these benefits have to be assessed on a case by case basis.