Chelsey Tucker graduated with a Bachelor of History degree from Metropolitan State University in 2019. She now writes about insurance with her specialty being life insurance and has been quoted on Help Smart Phone and MEL Magazine.

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Dan Walker graduated with a BS in Administrative Management in 2005 and has been working in his family’s insurance agency, FCI Agency, for 15 years. He is licensed as an agent to write property and casualty insurance, including home, auto, umbrella, and dwelling fire insurance. He’s also been featured on sites like Reviews.com.

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Reviewed by Daniel Walker
Licensed Auto Insurance Agent

UPDATED: Aug 20, 2021

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Disability Insurance Companies
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Why is disability insurance so important? Debilitating accidents or diseases are threatening enough on their own, but combine their effects with a forced absence from work for any period of time, and the situation can quickly become a financial catastrophe.

The kinds of misfortunes that befall workers, prompting short or long-term absences from the job, take many forms.

Accidents are the highest single cause of disability, but various illnesses combine to make it much more likely that falling sick will be the force that drives one in three employees out of the workplace for more than three months at a time. 

Disability insurance was created to help protect employees from the loss of income and benefits that is the all too common reality of disability, as health insurance doesn’t cover loss of income. Having some sense of stability when facing required medical care can come as a relief, knowing that your finances are covered during your time of need.

Disability insurance provides money paid out in the event that a worker cannot perform his or her job duties due to illness or injury. Disability insurance may be offered by employers, private insurers, and/or the state or federal government.

On-the-job accidents or work-related illnesses may be covered by Worker’s Compensation. It is every employee’s responsibility to find the coverage that protects him and his family from the ramifications of temporary joblessness resulting from an illness or accident.

In this article, we’ll cover disability insurance for individuals, social security disability insurance, disability insurance meaning, and long-term disability insurance.

If you’re ready to jump in and get a quote for any number of insurances, enter your ZIP code into our free online quote comparison tool above. It’ll give you the best rates for your area based on your demographics.

Is there any financial danger in becoming disabled?

Disability insurance is often far from the minds of workers. While health, life, and dental insurance consistently rank as the top three most coveted forms of insurance in the workplace, the statistics bear out that the likelihood of suffering a major injury or illness over the course of one’s working life makes disability insurance just as much of a concern, if not more of one.

In fact, a person is more likely to suffer a disability than premature death, which could arguably make disability insurance a wiser investment than a straight life insurance policy. 

Over the course of a disability, especially a long-term or permanent one, the loss will not only come in the form of one’s weekly income but in the cessation of employer-sponsored medical coverage and savings plans such as the 401K.

According to statistics, there are 54 million Americans living with a disability. You may be wondering, “What is considered a disability?” Understanding that is the first step to figuring out if you need disability insurance or not.

Of course, the answer to what counts as a disability may vary from the federal government definition to the specific wording in a disability insurance policy. 

What are the types of disability insurance? 

The main sources of disability insurance are national and state programs, employer-sponsored programs, and individual policies from private insurers. Possessing one of these forms of coverage does not rule out the need for the others. Careful scrutiny of the benefits and limitations of each will allow workers to create a package that will protect them to the fullest. 

National and State Disability Programs

In the United States, disability coverage falls under the Social Security umbrella in the form of Social Security Disability Insurance (SSDI). Eligibility requirements are stringent and coverage is basic, but it is an important safety net laid out for citizens by the government. 

SSDI requires recipients to prove that they have extensive physical or mental impairments that can be expected to last for at least a year or to end in death. The application process is long and involved. The vast majority of applicants do not fit the government’s strict criteria. In 2005, 75% of first-time applicants were denied coverage.

Those that do qualify receive a monthly payment that is adjusted to account for the annual cost of living increases. The payment may or may not be taxable, depending on individual circumstances.

For most workers, living on SSDI alone will leave their families below the poverty level. However, dependents under age 18 and spouses over the age of 62 may be eligible for benefits as well. No benefits will be paid until six full months of disability have elapsed.

The states of California, Hawaii, New Jersey, New York, and Rhode Island, as well as Puerto Rico, require and provide short-term disability coverage that is deducted from all workers’ paychecks. Coverage usually lasts up to 6 months.

Employer-Sponsored Disability Insurance

Coverage through one’s employer is the most utilized source of disability insurance in the United States. Group disability insurance policies exist as short-term disability (STD) and long-term disability (LTD).

Short-term disability insurance pays a pre-determined percentage of one’s income for up to three months, while long-term disability insurance covers anywhere from 40 to 60% of one’s income for extended periods. 

The methods by which companies provide disability insurance vary widely. Some offer group coverage and pay the premiums in full. Some pay a portion of the premium, while others merely provide the option for group coverage, requiring all participants to pay their own premiums.

Any benefits received from a policy paid for by the employer will likely be taxable. If the employee pays all premiums with his own after-tax income, any benefits are likely tax-free.

The higher one’s income is, the less likely it will be that employer-sponsored disability insurance will cover the costs of joblessness. Many policies specify a monthly limit of $5,000 to $10,000.

Combine that with the taxes taken out of each payment, and a disabled worker may find himself taking in much less than the 40% to 60% of his regular salary that he thought he’d be getting from his employer-sponsored disability insurance policy.

Another form of compensation offered through the workplace is worker’s compensation. This coverage kicks in when one is injured or becomes ill because of his or her job.

Coverage usually accounts for two-thirds of the worker’s pre-disability income. In the grand scheme of accidents and illnesses that affect Americans today, however, a very small percentage is job-related.

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Individual Disability Insurance

The individual disability insurance policy offers the opportunity for the most extensive and customizable package. Workers can receive no more than 80% of their pre-disability earnings through a policy that can cost from 1-3% of their yearly earnings.

Benefits are income-tax-free when premiums are paid for with after-tax income. Workers can also use individual disability insurance to supplement the group policy offered through their employers.

Since the details of the coverage offered by the insurer vary widely from company to company, all consumers should analyze their options carefully before committing to the policy that offers them the protections they need.

How does renewability affect coverage and premiums?

One issue that has a large effect on the price and extent of your coverage is renewability. The three general areas of renewability are conditionally renewable policies, guaranteed renewable policies, and non-cancellable and guaranteed renewable policies.

With conditionally renewable policies, the company can change conditions or raise rates at any time. While they are the cheapest option at first, they may become more and more expensive over time and, worse yet, become altered by conditions that will render them virtually useless when you need the benefits.

Guaranteed renewable policies provide consumers with the security of knowing their coverage won’t be dropped. The policies can be altered, however, in the form of raised rates.

Non-cancellable disability insurance is attached to the most expensive premiums; but, it offers the most security against the catastrophe of prolonged disability in the future. A non-cancellable policy guarantees you the same coverage year after year.

How can you fine-tune your disability insurance policy?

There is a myriad of considerations to make when finalizing a disability insurance policy. One of them is whether or not to include a rider that will adjust the policy for inflation. This may be a wise investment for young workers who will not get the same bang for the policy’s buck in the event that they are injured or become ill 10 or 20 years down the line.

A similar rider is the “future purchase option” which leaves policyholders with the chance to increase the number of their benefits every three years. You can increase your benefits even after you develop a health condition that may lead to disability, though you probably won’t be able to exercise the option once you are already receiving benefits for that disability.

The elimination period will also have an impact on your premiums. This refers to the amount of time between the beginning of one’s disability and the date that the insurer starts providing benefits. The longer the elimination period is, the lower the premium.

Is there a specific definition for disability insurance?

Insurers may use different definitions of the term disability when writing policies. Two different schools of nomenclature are “own occupation disability” and “any occupation disability”.

When a policy specifies “own occupation disability” it means that the insured is entitled to benefits when he or she cannot be productive at his or her current job.

It allows the insured the option to take on other work while still receiving benefits. “Any occupation disability” insurance only extends benefits to those who have no source of income whatsoever.

And of course, it’s always important to note that a disability can be permanent or temporary. If it’s considered permanent, it will be handled much differently than one considered temporary.

Where can you research disability insurance?

Using our online disability insurance quote comparison tool will allow you to generate quotes, based on your specific situation and needs, from a host of insurers. This will enable you to evaluate the different benefits and conditions in a straightforward and comprehensive way.

Only you can balance your understanding of your current financial position with the risks your future may hold. Our online disability insurance quote comparison tool will help you weigh the variables to better shape your situation into solid protection against whatever the future may bring.

Keep in mind that even if you’re on full disability, you may still be able to start a home business or find another way to earn wages. However, starting a home business while you’re on full disability may lead to government restrictions if you wish to keep your disability payments. If this is confusing, you can always talk to an agent from your insurer to get assistance. They’ll be able to work with you on what you’ll be able to do. 

What are the most frequently asked questions about disability insurance?

Now that we’ve covered numerous topics related to disability insurance, let’s get to your frequently asked questions. They include is disability insurance worth getting, how much disability insurance you can buy, and does disability insurance pay monthly.

#1 – How does disability insurance work?

Disability insurance works like any other type of insurance: You pay a certain amount in premiums (sometimes split with your employer), then if you meet the criteria of the policy, you will receive monthly payouts related to your salary. Generally, the amount you receive is up to 60% of your earnings, so it’s not your full paycheck.

#2 – Is disability insurance worth getting?

Disability insurance can be worth getting, especially if you work in a job where an accident is more likely to occur. If you work in an industry like construction or oil and are more likely to sustain an injury that will put you out of work, disability insurance can cover you in the event of that injury.

#3 – What is covered by disability insurance?

It depends on the policy. Some policies will only partially cover someone, especially if the injury or disability is incredibly severe. Both physical and mental disabilities are covered as well.

#4 – How can I get disability insurance?

You can get disability insurance through two ways: directly from your employer or indirectly through a work insurance marketplace. If your employer offers you disability insurance directly, they may cover a portion of the premiums. If they offer it through a work insurance marketplace, you may have to voluntarily purchase it and pay the full amount of the premiums.

#5 – How much disability insurance can I buy?

You can purchase a disability insurance policy and choose the length of time that policy will be active. If you receive payouts for a long length of time, it is likely that your premiums will be higher.

#6 – At what age should you drop disability insurance?

Because most disability insurance stops paying at 65 years old, that age or a little before would be a good time to drop disability insurance.

#7 – Does disability insurance pay monthly?

Yes, generally, disability insurance pays monthly.

#8 – How much of your salary do you get on long-term disability?

The cap for the amount of your salary you’d receive with a disability insurance package is around 60% of gross, untaxed earnings.

If you’re thinking about getting disability insurance or you think you might already need it, one of the best ways to save money is to shop around. There is more that is typically offered than protection for a person’s individual standard of living; you want to make sure you have income protection as well. Talk to some professionals, look into the type of insurance the insurance company you’re interested in has to offer. More than that, compare multiple insurers against one another. Your financial stability is important, and they should be more than willing to take a look into policy options for you. Take care of yourself, and find the best fit for what you need in life.

Plug your ZIP code into our free online quote generator. It’ll help you find the best insurance rates in your area.