Disability Insurance

Disability Insurance, often called DI or disability income insurance, is a form of insurance that insures the beneficiary’s earned income against the risk that a disability will make working uncomfortable (as with psychological disorders), painful (as with back pain), or impossible (as with coma).  It encompasses paid sick leave, short-term disability benefits, and long-term disability benefits.

Statistics show that in the US a disabling accident occurs on average once every second.  One-in-four workers will become disabled at some point during their adult work life.



Types of disability insurance


Individual disability insurance

Those whose employers do not provide benefits, and self-employed individuals who desire disability coverage, may purchase policies.  Premiums and available benefits for individual coverage vary considerably between companies, occupations, states and countries.  In general, premiums are higher for policies that provide more monthly benefits, offer benefits for longer periods of time, and start payments of benefits more quickly following a disability claim. Premiums also tend to be higher for policies that define disability in broader terms, meaning the policy would pay benefits in a wider variety of circumstances.


Employer-supplied disability insurance

One of the most common reasons for disability is on-the-job injury, which explains why the second largest form of disability insurance is that provided by employers to cover their employees. There are several subtypes that may or may not be separate parts of the benefits package: workers’ compensation and more general disability insurance policies.


Key-person disability insurance

Key Person Disability Insurance provides benefits to protect a company from financial hardship that may result from the loss of a key employee due to disability.  The company can use the benefits to hire a temporary employee should the disabled employee’s disability appear to be short-term.  In the case of permanent disability, benefits are used to help defray costs related to hiring a replacement, including recruitment, training, startup, loss in revenue and unfunded salary continuation costs.


High-limit disability insurance

High-limit disability insurance is designed to keep individual disability benefits at 65% of income regardless of income level.  Coverage is typically issued supplemental to standard coverage.  With high-limit disability insurance, benefits can be anywhere from an additional $2,000 to $100,000 per month.


Workers’ compensation

Workers’ compensation offers payments to employees who are (usually temporarily, rarely permanently) unable to work because of a job-related injury.  However, workers’ compensation is in fact more than just income insurance, because it compensate for economic loss (past and future), reimbursement or payment of medical and like expenses (functioning in this case as a form of health insurance), general damages for pain and suffering, and benefits payable to the dependents of workers killed during employment (offering a form of life insurance).  Workers compensation provides no coverage to those not working.  Statistics have shown that the majority of disabilities occur while the injured person is not working and therefore is not covered by workers’ compensation.

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