What Does Disability Insurance Cover?
Disability insurance is designed to cover a portion of a person’s income if they become severely injured or have an illness that prevents them from being able to work full-time. Most people who have disability insurance obtain their coverage as a benefit from their employer, however, individual policies can also be purchased outside the workplace.
If you become unable to perform your job on a full-time basis due to a serious injury or illness, you have several options depending on the circumstances which caused you to become disabled.
Your options include applying for benefits from a government agency (state and/or federal) depending on where you live. You may have additional options if you purchased a disability insurance policy to ensure your income in the event that you become unable to work due to a serious injury or illness.
If a person becomes disabled due to an injury or illness that occurred on at work, additional disability benefits may be available through the workers’ compensation system. Workers’ compensation benefits are beyond the scope of this article.
What Government Benefits Are Available for Disabled Workers?
The State of California and the federal government have various programs that can provide disabled workers with a source of income replacement if they become unable to work due to a serious injury or illness. Benefits provided by these agencies will cease when you return to work because payment of these benefits is predicated on a person not having the capacity to work.
California’s Employment Development Department (EDD) pays disability benefits for up to one year. The EDD also has a Paid Family Leave (PFL) wage replacement benefits program for eligible workers who will be off work for a short period of time. To be eligible for these benefits, a person must be unable to work due to a:
- Non-work-related illness or injury
The PFL program provides for paid time off to individuals who need to take time off work to:
- Care for a seriously ill child, parent, parent-in-law, grandparent, grandchild, sibling, spouse, or registered domestic partner;
- Bond with a new child entering the family by birth, adoption, or foster care placement; or
- Participate in a qualifying event because of a family member’s (spouse, registered domestic partner, parent, or child) military deployment to a foreign country.
The federal government has different programs run by the Social Security Administration (SSA). The SSA provides Social Security Disability Income (SSDI) and Supplemental Security Income (SSI) to people who are found to be disabled under the SSA’s rules.
The SSDI program pays benefits to people and certain family members if they are “insured,” meaning that they have worked long enough, and have also paid taxes on their income which funds the Social Security program. The SSI program pays benefits to disabled adults and children (ie: blind, aged, or disabled) who have very limited income.
Employer-Sponsored Group Short-Term Disability and Long-Term Disability Insurance
Group disability insurance is an optional employer-sponsored program that is generally part of a group benefits package available to a person’s employer. These insurance benefits supplement a percentage of a person’s income if they become unable to work due to a serious illness or injury.
The biggest difference between group short-term and long-term disability insurance is the duration of time that someone receives benefits if they become unable to work.
If you are suddenly unable to work due to serious illness or injury, short-term disability insurance can replace a percentage of your income during the initial weeks of your disability. While policy terms can vary, short-term disability benefits generally pay a weekly benefit for a period that is usually between three to six months.
Short-term and long-term disability insurance policies actually work together. If you person have both short-term and long-term disability policies, the short-term disability portion will pay you benefits to cover the elimination (waiting) period before your long-term disability become eligible.
While policies can very, long-term disability insurance policies generally have an elimination period that is 90 or 180 days. Short-term benefits will pay you a weekly benefit for this same period of time.
Long-term disability insurance pays a percentage of your pre-disability income, usually between 50 and 70%. Some employer-sponsored disability plans give employees the option to “buy-up” their benefit to a higher percentage of their income.
Long-term disability benefits are payable either until you are able to return to work, or for the number of years stated in the policy itself. Generally speaking, Long-term disability benefits will be paid either until age 65 or your Social Security Normal Retirement Age (SSNRA), depending on the terms of the policy. You can find your SSNRA here.
Most group long-term disability policies limit the amount of time that benefits are payable when the reason you are disability is based upon a mental or psychological condition. In addition, monthly benefits are usually offset by benefits that are received from other sources for the same disability (i.e., State Disability, Social Security Disability, Temporary Total Disability through Worker’s Compensation, loss of earnings compensated through a personal Injury recovery, etc.).
It is imperative that you read your policy to fully understanding the limitations that affect the amount of benefits that you will be entitled to receive from your disability carrier. Many employers offer full-time employees group short-term and/or long-term disability insurance.
If you have become disabled and are not sure if you are a participant in your employer’s group disability program, contact the HR department. You can also check your paystubs to see if premiums for this type of insurance have been deducted from your earnings.
Even if there are no deductions from your earnings for “STD” or “LTD” insurance, that may not be definitive because sometimes employers pays the premiums for this coverage.
Individual Disability Insurance
Individual disability insurance is a private policy that is purchased outside a group plan setting at work. Unlike group plans that employees get through their employer, individual disability insurance policies are portable which means that you can keep your policy even if you change jobs, as long as you continue to pay your premiums.
A person can purchase an individual disability policy to supplement a group plan or provide additional coverage even if they are part of a group plan offered by their employer. For example, a nurse who works at a hospital may be a participant in the hospital’s group disability plan.
That same nurse can also purchase an individual policy to provide additional benefits in the event of disability. Some people obtain individual disability insurance in addition to their group insurance because individual policies are not subject to the same limitations in coverage as group plans.
Generally speaking, individual disability policies do not contain a two-year limitation on claims based upon mental health or psychiatric conditions, and individual disability policies do not offset other sums of money that you receive for the same disabling condition.
The reason that most people get disability insurance through an employer-sponsored group plan is that the premiums on individual disability policies are substantially higher. Individual disability policies cost more because they tend to offer better benefits.
Individual policies are underwritten and tailored to the individual being insured, meaning the insurance company has the option of conducting a medical background investigation to assess the level of risk (in the applicant becoming disabled) before issuing the disability policy.
If you have recently become disabled and are unable to work, and you are not sure what your options are, or if you have made a claim under a group or individual policy that has been denied, call our team for a free consultation today at (818) 495-8298.