Disability Insurance

In the event, if the worker becomes incapable of performing work due to injury, illness and earn income, the disability insurance provides income to this category of workers. Since disability is defined in different terms, there are different criteria that a worker must meet up with to qualify for disability insurance. Disability insurance is also known as disability income insurance.

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.

Own Occupation Disability Insurance

The own occupation disability is established when an individual is unable to work in his current occupation. Thus, for this, you don’t need to prove your inability to work in any other field apart from the one which you currently work. That means, if you are a medical doctor or a factory worker, if an illness or injury prevents you from executing your daily roles and responsibilities; it qualifies you to receive the benefits of your disability policy. This is regardless of the fact that your condition or illness can still enable you to work another job that the disability cannot affect.

Any Occupation Disability Insurance

The definition of any disability is just as its name implies; any occupation disability simply refers to an illness or disability that will prevent a person from being able to participate in any activity or job at all. Therefore, if the disability prevents you from working as a truck driver but you can still work as a dispatch officer for a transport company, you won’t be eligible for this type of disability insurance benefits. This definition thus involves a greater level of disability that will restrict an individual from participating in almost all activities. It is therefore rational that it will be difficult for the benefits to be paid from a policy that contains this type of language. “Any” therefore refers to the fact that in case there is any capacity that you can work in, no matter how different it is from the job you do presently, you will not be considered disabled, and therefore will not eligible for benefits.

Which Policy Will Cost More in Premiums?

From the main reason that the any occupation disability is highly unlikely and a policyholder might not get a benefit from it, plus the fact that the own occupation policy is less restrictive in its definition of what makes up disability, its premiums will be higher. The own occupation has a higher likelihood that benefits will be paid to the insured following disability, for example, a surgeon who loses his hand will have to be paid a disability benefit even if he can pick up a lecturing job later. Since “any occupation” policy is far less likely to payout benefits of any amount, the premiums are likely to be much lower than “own occupation” because there is a lesser chance of its occurrence.

Who can Benefit from Disability Insurance?

Anyone and everyone who relies on a paycheck is eligible and qualifies for this type of insurance as it provides a strong support and protection in case of absence from work due to disability. According to the Social Security Administration, there is a high probability that more than one in four 20-year-olds will experience a disability for 90 days or more before they clock 67-years.