Disability insurance

If you're unable to work due to an injury or illness, disability insurance will help protect your income so you can pay bills, get groceries, and stay on top of other daily expenses. While workers' compensation will only cover job-related conditions, disability coverage applies to a variety of medical issues, including those that occur outside of work.

Here's how the basic process works:

1. Purchase a disability insurance policy and pay the premiums to keep it active.
2. File a claim if a qualifying condition leaves you unable to work.
3. Complete the elimination period, which is used in place of a deductible for disability coverage and typically lasts for 30 to 90 days.
4. If approved, you'll receive benefit payments for as long as a claim stays open.

A claim will remain open if you continue to meet your policy's definition of disability, up to the maximum benefit period. Once you return to work or reach that limit, the claim will be closed, and payments will stop.

Some individuals may also qualify for Social Security Administration (SSA) disability benefits, although approval requirements can be strict and the benefits might not fully cover lost income.

If you file a disability claim, you need to meet your insurer’s definition of disability. Most long-term disability insurance policies use one of two standards:

• Own-occupation standard: Benefits may be available if you can’t perform the duties of your specific role, regardless of your ability to work in another field. For example, a surgeon who gets arthritis and can no longer operate could qualify for disability benefits, even if they could still perform another medical role.
• Any-occupation standard: Benefits are only available if you can’t work in any occupation that you’re reasonably qualified for based on your education, training, or experience.

Many long-term disability policies start with an own-occupation standard for an initial period, typically two to five years, then transition to the any-occupation standard.

Short-term disability (STD) insurance covers temporary disabilities and typically replaces 60%–80% of your pre-disability income while you recover.

• Benefit duration: Three to six months
• Elimination period (or waiting period): 14 days or less
• Benefit amount: Up to 80% of gross monthly earnings
• Source of coverage: Often provided as an employer-provided benefit or purchased independently. Mandatory in some states.

Long-term disability (LTD) insurance covers disabilities lasting months or years, with benefits that could continue until retirement age, depending on the policy.

• Benefit duration: Two years, five years, 10 years, or until you retire
• Elimination period: 30 to 720 days, but is often 90 days
• Benefit amount: Up to 60% of gross monthly earnings
• Source of coverage: Employer-provided benefit or directly from an insurer

Small business disability insurance protects business owners and their operations when a disability makes it impossible to work.

• Benefit duration: Varies by policy type and insurer; some policies provide benefits for a set period, while others pay until a covered expense or obligation is fulfilled.
• Elimination period: Typically ranges from 30 days to 24 months, depending on the type of coverage. Business overhead expense policies often have shorter waiting periods, while disability buy-sell policies may use longer waiting periods.
• Benefit amount: Based on the selected coverage and the business's financial needs, such as operating expenses, replacement costs, or ownership interests.
• Source of coverage: Purchased through a private insurance company and tailored to the needs of the business.

Common types of business disability insurance include:

• Business overhead expense (BOE) insurance covers ongoing operating costs like rent, utilities, and employee wages while the owner is unable to work
• Disability buy-sell coverage funds a buy-sell agreement so a co-owner can purchase a disabled partner’s share of the business to maintain business continuity
• Key person disability insurance covers the business for lost revenue or increased costs when an owner or key employee becomes disabled

Disability insurance benefits cover lost income if an individual can't work due to a medical condition or injury that happened on or off the job.

Workers' comp disability insurance only provides benefits for work-related injuries and illnesses. These benefits include funds to pay for medical care, as well as lost wages.

However, workers' comp disability generally covers about 66% of pay, while STD plans cover 80%. LTD typically covers the same percentage as workers' comp, but benefits last for a shorter period.

Workers' comp disability comes in two basic forms:

• Open (or active) claims, which means an employee is totally disabled due to a work injury and receives about two-thirds of their pay in most states. Another option (not available in all states): if the employee is able to work in a less demanding job or for fewer hours, the workers' comp insurer will pay the difference between the person's original pay and what they're making on lighter duty.
• Closed claims refer to those where the employee was declared totally and permanently disabled and provided with a lifetime pension. Partially disabled workers might receive a smaller lump sum or weekly benefit check for life.