Disability Insurance

Employer-supplied disability insurance

The work place is the most common location of a disabling injury so many employers find it in their best interest to assist workers in obtaining disability insurance. There are many different kind of employer supplied insurance and sometimes they are part of one insurance package.

Workers' compensation

Workers' compensation supplies partial income to employees who are unable to work because of a job-related injury. This is usually a temporary benefit and is rarely afforded to workers over a long time period. Workers' comp is more than just income insurance because it pays compensation for economic loss (past and future), reimbursement of medical and similar expenses, damages for pain and suffering, and benefits payable to the dependents of workers killed during employment.

Other

There are other types of policies that offer payments to employees who are temporarily unable to work because of any injury or illness even if it isn't job-related. Unlike workers' compensation, this coverage may not involve any aspect of life insurance, health insurance, or payments for suffering and pain. These plans are open-market plans with the advantage of a negotiated group rate. They tend to offer basic, low-end coverage at a low price. Sometimes each consumers have the option to buy upgraded coverage for additional fees.

Veterans' benefits

The various compensation and insurance provided to military veterans are similar to workers' compensation. The overall compensation system involves more than just one type of insurance involving everything from health insurance, to life insurance and from disability income to mortgage insurance. The scope of each of these is limited. For example, the life insurance aspect is limited to survivors' benefits for beneficiaries of veterans killed in the course of their service. It is not a general life insurance policy.

Newsweek magazine's cover story in the March 5, 2007 edition investigated the problems veterans of the wars in Iraq and Afghanistan are facing in receiving their VA benefits. The article tells the story of one veteran who waited a year and a half to begin receiving payments from the disability income insurance aspect of his VA coverage. Another article, in the New York Times, notes that in addition to the long waits, there are inequalities based on which state a vet is from. The Newsweek article says that even when a veteran manages to get his or her claim approved,

"The compensation is not huge. A veteran with a disability rating of 100 percent gets about $2,400 a month—more if he or she has children. A 50 percent rating brings in around $700 a month. But for many returning servicemen burdened with wounds, it is, initially at least, their sole income.”

Individual disability insurance policies

People who do not have government or employer sponsored disability insurance, or merely want additional coverage can purchase their own policies on the open market. Premiums and benefits for individual coverage vary greatly depending on provider, individual and location. Generally premiums are higher for policies that provided more monthly benefit, pay the benefit longer, and start payments for more quickly following a disability. Premiums also tend to be higher for policies that define disability in the broadest terms.

Claims: what is covered, and for how long

Below are the variables that most significantly effect claims. Each one does not make a diference to each type of disability insurance, but most of these are usually relevant.

• Was the disability unpredictable (not resulting from previously-known causes)?

• What if the beneficiary is only partially disabled?

• Was the disability incurred while performing job-related duties?

• How long will payments continue?

• What other insurance policies will pay claims for the injury?

• How much money will be paid per period?

Examples of how each variable may be important

Was the disability unpredictable?

A policyholder seeking a regular individual policy on the market must legally claim that he is in good health and not HIV-positive. A fundamental principle of insurance is that the insured does not knowingly obfuscate their risk level. Withholding or hiding relevant conditions is a form of fraud.

What if the beneficiary is only partially disabled?

Some policies will only pay claims if there is no job that the beneficiary can possibly do. Others, called own-occ policies, will pay the claim if the injury just means the insured cannot return to his/her original occupation. Own-occ policies charge higher premiums than non-own-occ, because tpay out greater benefits. For example, lets assume your normal job pays $5000 per month and involves lifting heavy equipment. Then you get injured, and can't lift such heavy items but you are still capable of doing light assembly work for $2500 per month. A typical policy will not pay a claim in this circumstance because you are capable of working but if your policy is an own-occ policy with a claim amount of 60% of your normal salary, it will pay you a claim of $3000 per month. These payments will continue until you are able to do your normal job again, the cap is reached (maybe 5 years of payments), or you reach age 65 and begin collecting Social Security.

Was the disability incurred while performing job-related duties?

Workers' compensation policies are not required to pay claims for disabilities incurred outside of job responsibilities. Insurance for non-working risks can be purchased, but but the premiums are usually higher because the risks are usually greater. The insurer is required to clearly state what coverage is being provided or they can be forced by a court to provide greater benefits than they intended.

How long will payments continue?

Many policies have a term cap. For example some policies make payments for only for 36 months. More expensive policies will pay claims until the national social insurance program takes over as the primary income source. For example Social Security takes over at age 65 and many disabled people lose their insurance benefits at this time.

What other insurance policies will pay claims for the injury?

If an car accident renders you unable to work for 12 weeks, your car insurance policy with Company X may include coverage for lost income during this period. In this case, you may choose to make a claim with Company A and make another with your disability insurance provider (Company Y). Sometimes there is an order of priority that states that Company Y is liable for the claim only if Company X's coverage is insufficient.

Also if your injury is someone else's fault, their liability coverage from (perhaps from a home, auto or personal umbrella policy) might cover for your lost income, and therefore you would not make a claim on your own policy.

How much money will be paid per period?

It is rare for any policy to supply a beneficiary with the full salary they had been previously earning. Generally policies pay a percentage, like 80%, or a flat amount, like $2100/month, regardless of normal income level. Disability insurance is usually intended to keep people from falling into poverty not keep them from a reduced quality of life. Policies that provide full income protection can be purchased, but they have higher premiums.