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Disability Insurance Basics

Caryn Anderson

Approximately one in five workers experiences an injury or illness that prevents him or her from being able to work for at least one year before the age of 65. Experts suggest that the risk of disability is higher than the risk of dying at a young age. So what would you do if something happened to you and you couldn’t work?

Disability insurance provides a safety net by paying you a portion of your salary if you become unable to work. This can mean the difference between being able to cover your expenses while you’re out of work and not being able to pay the bills.

The ideal disability insurance is what’s called guaranteed renewable, which means that the insurance company can’t drop your coverage unless you stop paying the premiums, and non-cancelable, which means your premiums are fixed for the life of the policy. Read on to learn more about the basics of disability insurance and how to choose the policy that works for you.

What Is Disability Insurance?

Disability insurance, also commonly known as disability income insurance, replaces part of your income if you’re unable to work due to illness or injury. Although most policies only pay a portion of your gross monthly income — usually around 45%–65% — that money can mean the difference between the ability to make your mortgage payment, car payment and other financial responsibilities or not pay at all.

From temporary disability insurance, which is most often offered through the state, to supplemental disability insurance, which provides extra coverage in addition to insurance offered through an employer, you can choose from several different types of this insurance. Disability insurance breaks down into two categories: short-term and long-term disability. Search online or contact insurers directly to get short-term or long-term disability insurance quotes so that you can compare rates among different insurers.

Types of Disability Insurance

Before you choose short- or long-term disability insurance, it’s important to understand the difference between the two types of insurance along with the different features that affect your coverage.

Short-Term Disability Insurance

Whether you have group or individual short-term disability insurance, this option kicks in once your sick leave or paid time off is depleted. Many of these plans pay up to 100% of your wages for an initial period, followed by a period of reduced payments as low as 60% of your wages. The length of time that the policy pays out varies depending on the plan, but most only cover disabilities that result in missing work for six months or less.

Long-Term Disability Insurance

As the name implies, long-term disability insurance covers disabilities that cause longer-lasting issues. The lengths of these policies vary, with some options paying out for 5 to 10 years and others paying out until you reach age 65. Many policies pay between 50% and 70%, although some companies allow you to invest in additional coverage to raise your payments up closer to 80% of your salary. Most financial experts stress the importance of having long-term disability insurance for optimal financial protection and peace of mind.

State Disability Insurance

State disability insurance is offered through your state of residence. It covers specific disabilities that last longer than one week and render you unable to perform your usual work duties. In many states, this also includes paid family leave for anyone who’s temporarily unable to work due to caring for an ill relative or caring for a new child.

Each state has a different take on disability insurance. For example, in California and New York, state disability is offered directly through the state and separately from Social Security. In other states, such as Florida, Social Security disability is your only option. To find out more about your state’s offerings, research disability insurance options on the official state website.

California State Disability Insurance

California’s state disability insurance covers nearly all California employees, except for most government employees, interstate railroad workers and certain non-profit and domestic workers. It typically pays 55% of your wages for up to a maximum of 52 weeks, depending on your physician’s estimate of how long the disability may last. This program also provides up to six weeks of paid family leave if you need to care for an ill relative or bond with a new child.

New York State Disability Insurance

New York’s Disability Benefits Law provides short-term disability benefits of 50% of your average wages up to $170 per week. The benefits are payable for up to 26 weeks in any 52-week period.

New York’s state disability insurance operates under the New York State Department of Labor and the New York State Worker’s Compensation Board, which handles both work-related and non-work-related disability insurance. To be eligible for New York’s short-term disability benefits, you must be one of the following:

  • An individual who is currently working or has recently worked for four or more consecutive weeks
  • An individual who has worked continually but has changed employers
  • A domestic worker such as a nanny or personal assistant who works at least 40 hours per week for a single employer
  • An individual who opts for voluntary coverage

Florida State Disability Insurance

Florida doesn’t have a separate disability program. If you’re a Floridian who becomes disabled, you need to apply for Social Security Disability Insurance and/or Supplemental Security Income through your local Social Security Administration (SSA) office or online through the SSA’s website.

Disability Insurance Quote

Unless you’re getting coverage through your employer, it’s important to shop around and get quotes from various disability insurance companies. Aim for at least three disability insurance quotes so that you can choose the one with the most competitive rates and terms.

Aflac Disability Insurance

Aflac is the leading voluntary insurance provider among workplaces in the Unites States. It offers life, disability, cancer, critical illness, accident, hospital, dental and vision insurance. Aflac’s short-term disability insurance is only available through employers. It offers guaranteed-issue coverage that’s renewable to age 75, with a payout of $1,000 every five consecutive years for keeping the policy.

American Fidelity Disability Insurance

American Fidelity Insurance offers five different plans with varying monthly benefits and premiums based on your monthly salary and the waiting period you choose. For example

  • Plan I begins paying after a 15-day waiting period
  • Plan II pays on the 31st day of a disability
  • Plan III requires waiting for 60 days after a covered injury or illness
  • Plan IV begins paying benefits on the 91st day of a disability
  • Plan V kicks in once you wait 150 days after a disabling sickness or injury

Benefits pay up to 70% of your monthly salary directly to your bank account. American Fidelity offers pregnancy, donor and family care benefits in addition to a benefit for becoming disabled after donating an organ. The hospital indemnity rider pays additional daily benefits for inpatient hospital stays of more than 18 hours, up to 90 days.

Guardian Disability Insurance

Guardian offers individual disability insurance, small business disability protection, basic disability insurance to employers for employees and supplemental plans. To learn more about each, consider the following:

  • Individual disability coverage is right if you’re main breadwinner in the family and don’t have disability insurance through your job
  • Small business disability is ideal if you’re a small business owner who wants business to continue if you’re unable to work due to injury or illness
  • Basic employer-provided coverage is given through your employer and covers about 50% of your income
  • Supplemental disability insurance is ideal if you want extra coverage on top of what your employer provides. This protects more of your base salary while also considering alternative income sources, such as commissions and bonuses.

Comparing Employer-Sponsored and Individual Disability Insurance

Both employer-sponsored plans, which are offered through your job, and individual disability insurance plans offer tax-deductible payouts if you use your own money to pay the premiums, but employer-sponsored disability benefits are taxable if your employer pays the premium for you. Many employers offer disability insurance as part of benefit packages for full-time employees. Group coverage can pay approximately 60% of your gross monthly income up to a maximum amount. Getting coverage through an employer-sponsored program has benefits that include:

  • Easy Qualification Process: Unlike individual plans, which often require you to provide evidence of good health, employer-sponsored insurance often requires minimal information and easy acceptance.
  • Low- or No-Cost Premiums: Because your employer is able to get this coverage as a group policy, the rates are generally lower than those for individual policies are. Some employers provide disability insurance at no cost.

If you’re self-employed, if your employer doesn’t offer disability insurance or if your employer-sponsored coverage isn’t enough to keep you financially stable in the event you become disabled, you can opt for individual coverage. Some of the main benefits of individual disability insurance include:

  • Portable Coverage: Take your insurance with you no matter where you go. Changing jobs, moving and other life events don’t end your coverage.
  • Customized Benefits: Individual disability insurance plans commonly offer coverage for partial disabilities until you reach age 65. You can also increase your policy as your income increases or if you have a health problem.
  • Choice of Insurance Carriers: While you don’t get any choice in who your employer chooses, you can shop around to find the right rates and policies for your own coverage.
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Published September 7, 2016
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