Fall Benefit Check-Up – Disability Insurance

Most employees participate in employee health and life insurance plans. Mandatory health insurance and employer paid plans for both types of policies lead to high levels of employee participation. Disability insurance is left to your discretion and typically does not receive any employer paid premium supplements to encourage enrollment. However with approximately 10 billion dollars in annual claims, carrying a policy could save your family from high medical costs or loss of income due to an accident or disability. Employers offering plans are on the rise, giving more employees a chance to gain this valuable coverage.

Disability insurance comes in both short, and long term options, both having their advantages. Here is what you need to know before deciding if you want to enroll.

Short Term Disability

Short-term disability covers time away from work due to an injury, accident or health issue, and typically covers 100% of your current salaried income. Overtime, commissions, and other variable pay does not factor into the benefit amount. Often there is a short waiting (elimination) period of around two weeks, on most policies, before benefits begin. Coverage is typically limited to disabilities lasting no more than three to six months. Breaking a leg playing basketball or surgery may fall under short-term disability and pay benefits. During the elimination period employees often use vacation or sick days to prevent an interruption in income. Once approved for short term disability, benefits typically pay weekly, and your base pay or a predetermined dollar amount dictates the payment amount.

Long Term Disability

Long term disability covers longer health issues or injuries but does not require permanent status like Social Security. Payments are typically only 60% of base pay, which may not eliminate the financial strain but are better than a total loss of income. Long term illnesses like cancer or those requiring multiple surgeries may result in a long term claim. Those experiencing a permanent disability also benefit. Long term disability typically starts after the short term policy stops and lasts until you are released back to work by your doctor. The payout amount is typically a preset daily limit based on your pay and should be updated annually to reflect any pay increases.

Supplemental Policies

Due to the smaller payout percentage of long-term coverage, some companies offer long-term supplemental policies which can increase the benefit amount to 100% of income or account for variable pay you need to cover bills. Supplemental policies are a per day or per week dollar amount rather than a percentage of base pay.

Common Traits of Employee Based Policies

Disability insurance does not gain value over time and typically will not transfer when you change employers. Policies do not require health checks or consider pre-existing conditions. Typically there are no health questions or qualifications to pass. Payments are set based on the agreement with the employer and are typically lower than individual policies found on the open market.

Buying disability insurance is a protection or hedge against financial losses due to time away from work as a result of an illness or injury. If your family relies on your income and you do not have six months in emergency savings, a short term disability policy could be a cost effective way to prepare of the unforeseen. Long term policies can keep your family financially on track if a major injury or illness should impact your family.