Disability Insurance, often called DI or disability income insurance, is a form of insurance that insures the beneficiary’s earned income against the risk that a disability creates a barrier for a worker to complete the core functions of their work. For example the inability to maintain composure as with psychological disorders or an injury, illness or condition that causes physical impairment or incapacity to work. It encompasses paid sick leave, short-term disability benefits, and long-term disability benefits. Statistics show that in the US a disabling accident occurs on average once every second. In fact, Nearly 18.5% of Americans are currently living with a Disability, and 1 out of every 4 persons in the US workforce will suffer a disabling injury before retirement.
Types of disability insurance
Traditional disability carriers have limitations on the monthly benefits, which limit benefits for high income earners. Benefits typically cap at $20,000-$25,000 of monthly benefits.
Individual disability insurance
Those whose employers do not provide benefits, and self-employed individuals who desire disability coverage, may purchase policies. Premiums and available benefits for individual coverage vary considerably between companies, occupations, states and countries. In general, premiums are higher for policies that provide more monthly benefits, offer benefits for longer periods of time, and start payments of benefits more quickly following a disability claim. Premiums also tend to be higher for policies that define disability in broader terms, meaning the policy would pay benefits in a wider variety of circumstances. Web-based disability insurance calculators assist in determining the disability insurance needed.
High-limit disability insurance
High-limit disability insurance is designed to keep individual disability benefits at 65% of income regardless of income level. Coverage is typically issued supplemental to standard coverage. With high-limit disability insurance, benefits can be anywhere from an additional $2,000 to $100,000 per month. Single policy issue and participation (individual or group long-term disability) coverage has gone up to $30,000 with some companies.
Key-person disability insurance
Key Person Disability Insurance provides benefits to protect a company from financial hardship that may result from the loss of a key employee due to disability. The company can use the benefits to hire a temporary employee should the disabled employee’s disability appear to be short-term. In the case of permanent disability, benefits are used to help defray costs related to hiring a replacement, including recruitment, training, startup, loss in revenue and unfunded salary continuation costs.
Business overhead expense disability insurance
Business Overhead Expense (BOE) coverage reimburses a business for overhead expenses should the owner experience a disability. Eligible benefits include: rent or mortgage payments, utilities, leasing costs, laundry/maintenance, accounting/billing and collection service fees, business insurance premiums, employee salaries, employee benefits, property tax, and other regular monthly expenses.
National social insurance programs
In most developed countries, the single most important form of disability insurance is that provided by the national government for all citizens. For example, the UK’s version is part of National Insurance; the U.S.‘s version is Social Security (SS)—specifically, several parts of SS including Social Security Disability Insurance (SSDI) and Supplemental Security Income (SSI). These programs provide a floor beneath all other disability insurance. In other words, they are the safety net that catches everyone who was otherwise (a) uninsured or (b) underinsured. As such, they are large programs with many beneficiaries. The general theory of the benefit formula is that the benefit is enough to prevent abject poverty.
In addition to federally funded programs, there are five states which currently offer state funded Disability Insurance programs. These programs are designed for short term disabilities only. The coverage amount is determined by the applicant’s level of income over the previous 12 months. The states which currently fund disability insurance programs are California, New York, New Jersey, Rhode Island, and Hawaii.
Employer-supplied disability insurance
One of the most common reasons for disability is on-the-job injury, which explains why the second largest form of disability insurance is that provided by employers to cover their employees. There are several subtypes that may or may not be separate parts of the benefits package: workers’ compensation and more general disability insurance policies.
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