Disability Insurance Policies

If we trust the Social Security Administration, 25% people of the age group 20 or nearby will be disabled and unable to work before they reach their late 60’s . But people don’t know that unlike the medical, dental and vision insurance, there are other insurance products which are designed to replace a portion of their income when they fall sick, become disabled or cannot work.

As the name suggests disability insurance is one which is provided when an employee is disabled and hence cannot work. Worker’s compensation insurance provides the benefit of partial wage replacement if an employee is hurt on the clock but disability insurance provides them wage replacement benefit when the employee cannot work due to a disability or illness caused away from work. Disability insurance does not replace all of someone’s income but provide wage replacement benefits that cover, on average up to 60% of employee earnings. Though it not the ideal case but something is better than nothing. Moreover, it can be of great help to satisfy the medical needs of the employees and the daily need of their family.

Types of Disability Insurance – Long Term and Short Term

There are basically two types of disability insurance: short-term and long-term. Short term disability pays out a portion of employee’s income from 9 to 52 weeks depending on the plan. Short term disability benefits kick in after a waiting period of about 7 to 14 days. Under certain conditions there will not be a waiting period. It is advisable to have a complete information about a waiting or “elimination period”.

Long term disability picks up where the short term disability ends. The long term disability insurance provides about 50%-60% of an employee’s base wages. Long term insurance policy is paid out for the number of years indicated in the plan document. There are some long term disability policies which pay out partial wage replacement benefits up to the age of 65 years. Some private companies may offer both short term and long term disability insurance policy whereas some may leave it on the employee to choose.

Such policies generally fall into two buckets: own occupation disability insurance & any occupation disability insurance.

Own Occupation Disability Insurance

This policy covers individuals who become disabled and can’t perform majority of the occupational duties that they have been trained to perform. The key factor in an own occupation policy is how “disabled” is defined in the policy contract. The definition in an own disability insurance policy can be flexible such as persons covered under an own occupation policy may find another job and still receive full benefit payments. Under this policy, the policyholder enjoys the benefits if he is unable to work in someone’s “own occupation,” regardless of whether you find employment in another profession. These type of insurance policies apply to highly trained individuals, such as surgeons.

Any Occupation Disability Insurance

This policy covers the individual who is unable to work in a job that is reasonably suitable for them based on their education, experience and age. The contract mentions the type or nature of work that a policyholder is able to perform. If the disabled person is capable of working at a lower paying job, any occupation policy would not pay the benefits. Any-occupation policy considers a person disabled if he is not able to perform the same job he did before the accident or injury. For example, if a surgeon injures his hands, he would not receive benefits even if he is not working as a surgeon but is working in the medical field maybe as a professor.