Disability Insurance

Typically, disability insurance offers payments for a limited period to assist people unable to work as a result of non-job related accidents, injuries, or illnesses. In some locations, this type of insurance also covers some pregnancy-related expenses. While many employers encourage workers to obtain disability insurance coverage, this type of private insurance policy does not constitute worker’s compensation (workers compensation applies in the United States in the case of work-related injuries, accidents, or illnesses).

Who Should Seek Disability Insurance?

Most adults benefit from obtaining disability insurance coverage. It offers the ability to obtain income if an insured sustains partial or complete disability and cannot earn wages as a result. This type of insurance proves especially critical for people with households to support. One study reveals 25% of people sustain at least three months of disability between the ages of 20 and 67.(1) Consequently, disability insurance often proves vitally important.

How It Works

This type of coverage generally falls into two broad categories: short-term and long-term. An insured receives payments for a designated period or until regaining the ability to return to work. Insurance companies calculate payments as a percentage of an insured’s standard monthly salary, up to a specified maximum amount. For example, if a policyholder breaks a hip while hiking and cannot work for several months, a short-term disability policy might pay 65% of the insured’s monthly wages.

Different Types of Disability Insurance Coverage

The policy provisions control the operation of disability insurance. Short term disability policies tend to pay a higher percentage of salary (60%-70%) than long-term disability policies (40%-60%). Additionally, payments commence within a few weeks (as opposed to a three month waiting period for most long term disability policies). As their name suggests, long term policies usually provide coverage for lengthier periods.

Benefits Provided by Disability Insurance

Disability insurance supplies financial payments to help substitute for lost wages. Long term policies may also cover some career retraining expenses.