Types of Disability Insurance
Basically there are two kinds of disability insurance, with each type having its own specific requirements and features. They are:
- Short term disability insurance policy
- Long term disability insurance policy
Short Term Disability Insurance Policy
In the short term disability insurance policy, a portion of workers’ salary is paid to them if they are unable to work for a short period of time. Usually, this short term is defined as a period between three to six months.
However, before a worker starts to receive payment, he/she must have completed a period called the elimination period. The elimination period is the period of disability that must be completed before payment of the insurance commences.
Typically, 60-70% of the base salary of the worker is paid to them as a benefit during the period and can last for a few months up to a year, depending on the terms stated in the underwriting.
Long Term Disability Insurance Policy
In the long term disability insurance, a worker will not receive the benefits due to disability until the elimination period is complete.
However, if the worker becomes able to work before the elimination period is over, no benefit will be paid to them.
The long term disability insurance usually replaces 40-65% of base salary, however, the benefits end when the disability becomes over, but if the disability persists, the benefit is paid over a given period of time or until retirement age, all depending on the statements included in the policy.
How it Works
Disability insurance vary in price based on the length of their elimination periods, the period for which the benefit of the insurance will be paid to the disabled worker, and how strict disability is defined in the policy. Typically, the disability insurance premium on a long term policy ranges between 1% to 3% of your annual income.
As said earlier, disability is defined differently based on the policies, and broadly, there are two main definitions of disability. The first widely used definition of disability is “own occupation” which refers to the event in which a worker is unable to do the work they were doing before they became disabled. While the second definition of disability is the “any occupation”, which generally refers to the event in which an individual is unable to perform any work at all.