Disability insurance is an often-overlooked form of protection that can provide financial stability and peace of mind in times of need. But not all policies are the same.
In this blog, we’ll take a look at the different types of disability policies, how they work, and when they might be beneficial to you!
Types of Disability Insurance
Different types of disability policies provide different levels of coverage, so it is important to understand the different types in order to make an informed decision.
The following are the most common types of disability insurance:
- Short-term insurance policies provide coverage for a limited period of time, typically from three months to one year. The amount and length of benefits depend on the policy terms, but it may provide up to 60 percent of a person’s pre-disability income for this period.
- Long-term disability insurance is designed to replace a percentage of your income if you are unable to work due to illness or injury over a longer period, often five years or more. Generally, long-term policies will pay out benefits until you reach retirement age (typically 65) or until you recover and can once again work. However, some insurers may place a cap on long-term benefits payments at various times throughout the duration of your policy (for example after 5 years).
- Employer disability plans typically offer partial wage replacement benefits should an employee become temporarily disabled because of illness or injury-related condition(s). The amount paid per month will vary depending on the employer plan, with most providing between 50 – 70% percent of salary as benefit payments. Employer-sponsored plans may also offer additional features like rehabilitation services and return-to-work programs that help injured employees transition back into full working duties after recovering from their injury/condition(s).
- Individual Insurance offers more customizable coverage than many employer-sponsored plans – including higher benefit payments and added features like return-to-work programs not usually included in group plan coverage. They may be suitable for those with higher earning potential who require more comprehensive protection should they become disabled due to an unfortunate accident or sickness down the track as individual policies don’t normally terminate when another employment begins/ends.
Short-Term Disability Insurance
Short-term disability (STD) insurance protects a worker’s wages in the event they suffer an illness or injury and are unable to work. Small business owners who cannot afford a long-term plan can choose short-term disability plans as an alternative. Since disabilities may range from minor injuries to long-lasting medical issues, you should have comprehensive protection in place for when the unexpected occurs.
It typically pays a portion of your income for up to a month and can cover medical costs associated with your disability. Typical coverage often pays up to 66% of pre-disability earnings and benefits may extend from three months to two years, depending on the insurance company.
Eligibility for benefits is usually determined after you meet a certain waiting period or elimination period that could range from seven days up to several weeks. This period starts when you first become disabled due to an illness or injury and ends when benefits first payout if you continue to suffer from your ailment or injury.
It’s important that employers understand their responsibilities when providing short-term disability insurance plans, so they should be sure to contact their broker prior to offering any plan option. By doing so, they will be able to protect themselves against any potential violations of state wage laws while providing coverage that is best suited to their employees’ needs.
Long-Term Disability Insurance
LTD coverage is designed to replace a portion of your income if you become disabled and cannot work for a prolonged period of time, usually six months or more. These policies typically pay between 60% and 70% of your pre-disability salary, up to an established limit (usually $5,000 and $10,000 per month). Benefits are generally paid out until age 65 or 67 when the person becomes eligible for Social Security benefits.
Most LTD plans will have waiting periods ranging from 30 days (sometimes less) to 180 days depending on specific policy details. That means the disability must last for at least the length of the waiting period before you begin collecting benefits.
Additionally, policies may have provisions that limit coverage if the condition was present prior to taking out the policy – a pre-existing condition clause – so it’s important to read through all documents carefully before signing up for coverage.
LTD coverage can provide financial security in case you suffer from a serious medical condition or injury that keeps you from working for months or years at a time – but only if it’s purchased prior to becoming disabled, so be sure to consider getting this valuable protection now.
Employer-Provided Disability Insurance
Employer-provided disability insurance is an insurance plan offered by employers to their employees.
These policies are designed to provide financial assistance for workers who become disabled for a period of time resulting in the inability to work and generate an income.
Depending on the terms of the policy, an employee may be eligible for benefits if they are unable to work due to a permanent disability or a short-term disability lasting several weeks or months.
The exact stipulations and amount of coverage will vary from employer to employer. Generally speaking, employer-provided insurance policies cover up to 60% of basic salary and wages, but this depends on the specific terms of the policy. The benefits may be taxable and these taxes can be deducted directly from your payout or required to be paid out of pocket following receipt.
In addition, it is important to note that employer-provided disability insurance policies do not cover long-term illnesses or conditions such as cancer, diabetes, asthma, and other chronic health issues that require extended leave from work due to treatments or hospitalizations; these conditions must typically be covered by a separate policy purchased through another provider.
Conclusion
Disability insurance can be a way to help cover the costs of living while you are unable to work. There are a variety of different types of insurance, so it is important that you find one that is right for your needs. Disability insurance can provide financial security in case you become disabled and cannot continue working.
