Tag Archives: long-term disability benefits

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 worker may suffer from an inability to maintain composure in the case of psychological disorder 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 $2000 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, account/billing and collection service fees, business insurance premiums, employees’ 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.  The U. S. ‘s versions is Social Security (SS) – specifically, several parts of SS include 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 a 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 are:  California, New York, New Jersey, Rhode Island and Hawaii.

America’s health-care entitlements – Medicare, Medicaid and Obamacare are the biggest drivers of America’s exploding federal debt.  There is a fourth program that pays disability benefits through the Social Security Administration, that is growing at an alarming pace.  While part of that growth can be explained by the ageing of the U. S. population, the largest factor in the proliferation of disability spending comes from the fact that Congress has dramatically expanded the definition of who gets called “disabled”.  As a result, many able-bodied Americans have been granted pay checks for life, crowding out America’s ability to direct needed resources to the genuinely infirm.

The Great Recession of 2008 led to a spike in unemployment;  many people who had difficulty finding work discovered that they might be eligible for Social Security disability benefits, benefits that would replace a significant portion of their previously earned wages, while also qualifying them for Medicare, the generous health insurance program for the elderly.  Today the United States spends around $200 billion a year on Medicare.

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.

Workers’ Compensation

This is a form of insurance providing wage replacement and medical benefit to employees injured in the course of employment in exchange for mandatory relinquishment of the employee’s right to sue his or her employer for the tort of negligence.  The trade-off between assured, limited coverage and lack of recourse outside the worker compensation system is known as “the compensation bargain”.

While plans differ among jurisdictions, provision can be made for weekly payments in place of wages (functioning in this case as a form of disability insurance), compensation for economic loss (past and future) reimbursement or payment of medical and like expenses (functioning in this case as a form of health insurance), and benefits payable to the dependents of workers killed during employment (functioning in this case as a form of life insurance).

General damages for pain and suffering, and punitive damages for employer negligence, are generally not available in workers’ compensation plans and negligence is generally not an issue in the case.