Disability Insurance

What would happen if you become disabled or ill and could not work?

Individual Disability

Individual disability income insurance pays you benefits if you can't work because you're sick or injured. Some individual policies pay partial benefits if you can only work part-time due to sickness or injury. Individual policies specify how much you will be paid, how soon after you are disabled benefits will begin, and when benefits will end. Policies generally provide replacement of 50 to 70 percent of income. The length of time for which you may receive benefits can depend on whether accident or illness caused the disability. Monthly benefits are payable for a fixed period set forth in the policy, e.g. 2 years, 5 years, to age 65, or for the rest of your life, while disability continues. Benefits begin following a waiting period, which is the period between the time you become disabled and the time your benefit payments begin. Waiting periods can range from one week to a year or even two years. In general, the longer the waiting period the lower the cost of the policy.

Employer Based Disability

Many employers offer disability income insurance as part of their employee benefits program. If your employer pays the premium, you will pay tax on any disability benefits you receive. If you purchase disability income insurance yourself, and pay for it out of your own pocket with after-tax dollars, the benefits you receive are generally tax free. This distinction is important to consider. If you have employer-provided disability insurance, you may want to supplement it with an individual policy. In some states (NY, NJ, RI, CA, PR), employers may be required to provide disability income insurance.

Short-Term Disability

Short-term disability benefits are often included as part of an employee benefits package. Short-term disability plans replace income for the early period of a disability. In general, the plans provide benefits that range from as little as two weeks up to two years. Plans often have a waiting period, sometimes called an elimination period. The waiting period is the period of time, after you become disabled until your benefits begin.

Short-term disability waiting periods are usually 0 to 14 days. For example, if you have short-term disability coverage with a 14-day waiting period, and a disability keeps you from working for three weeks, you will receive benefits for the third week of your disability, but not for weeks one and two. Those two weeks are the waiting period, during which benefits are not paid.

Long-Term Disability Insurance

As with short-term disability plans, your employer may provide long-term disability coverage. Benefits help replace income for an extended period, often five years or until the disabled person turns 65. Plans with longer benefit periods are more expensive. These plans can have different waiting periods, typically 60, 90, 180, or 365 days.