Disability insurance provides income in case a business owner or employee is unable to work due to an illness or injury that occurred away from work. Workers’ compensation provides insurance for work-related disabilities.
If an illness or injury keeps someone from working for an extended period, disability insurance provides financial assistance to replace a portion of lost income. Coverage is typically available through employer-provided or voluntary employee benefits.
Disability insurance for small businesses is not normally a government requirement. However, businesses that operate in California, Hawaii, New Jersey, New York, or Rhode Island are required to provide employees with short-term disability insurance.
If you have employees, most states require you to carry workers’ compensation insurance, which provides benefits for work-related disabilities. Workers’ compensation requirements vary by state.
Disability insurance covers only injuries or illnesses that occur outside of the workplace. Workers' comp disability insurance provides benefits only for injuries and illnesses that are work-related. The benefits include funds to pay for medical care, as well as for lost wages (typically two-thirds of normal pay).
Workers’ comp disability coverage will generally pay less than short-term disability insurance (roughly 66% of pay vs. 80% of pay). But it pays roughly the same percentage as does long-term disability, but for a shorter period (unless the employee is declared permanently disabled).
Workers’ comp disability comes in two basic flavors:
To prove eligibility for disability insurance, the policyholder needs to meet the policy’s definition of disability. Two common definitions are own occupation and any occupation:
Own occupation means if you can’t perform the duties of your regular job, you’ll be considered totally disabled and eligible for benefits. This doesn’t mean you have to be bedridden, just that you can’t perform your regular duties.
Any occupation means if you can’t perform the duties of any reasonable job that would typically be suitable for you, you’ll be eligible for benefits. If you are able to work part-time in your normal job or in some other comparable field, you won’t qualify for your full disability benefits. However, you still might be able to receive a partial benefit.
Once you’re eligible, you still need to fulfill an elimination period (or waiting period) before receiving your first disability income check. The longer the wait you selected, the less expensive your disability insurance policy will be.
Finally, once your disability benefit payments begin, they will last until the end of the benefit period. This will depend on whether you purchased a short-term or long-term disability insurance policy.
There are four main types of disability insurance: short-term disability (STD), long-term disability (LTD), Social Security disability insurance (SSDI), and workers’ compensation, which is covered in other sections.
Short-term disability features:
Long-term disability features:
Social Security disability features:
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