What is disability insurance?
Disability insurance is a type of insurance that will provide income in the event that a worker is unable to do his job and earn money due to a disability. There are many types of organizations that offer different types of disability insurance. Each organization and type of disability insurance have specific rules regarding what constitutes a disability and how a person may be eligible to receive the disability benefit. This basic insurance is a key concept of social justice.
Key points to remember
There are two types of disability insurance: short term and long term.
- Individuals must wait for an elimination period before insurance can take effect.
- Disability insurance can be purchased privately and Social Security also provides disability insurance, including special compassionate allowance treatment for the very sick.
- More costly policies will have more liberal definitions of what constitutes a handicap: watch out for “any occupation” versus “own occupation”.
Types of disability insurance
There are two basic types of disability insurance.
- Short-term disability insurance policies offer workers a portion of their wages if they are unable to work for a short period, usually three to six months.
- Long-term disability insurance offers a worker part of his wages if he is unable to work for a longer period – usually more than six months.
Short-term and long-term disability policies provide a period during which a person must be disabled before that person can start receiving disability benefits. This period is called the elimination period. If a person becomes disabled, they must wait until the end of the elimination period before starting to receive benefits. If they are able to work before the end of the elimination period, the person will not receive any benefits.
The Social Security Administration also provides disability insurance. Employees who have paid tax on contributions to the Federal Insurance Contributions Act (FICA) for a certain amount of time, are eligible to receive Social Security disability insurance if they meet the strict disability conditions of the OASDI program.
Disability insurance is also called disability income insurance.
How Disability Insurance Works
Disability insurance comes in many forms and can be obtained from a wide range of providers for a wide range of prices. The price of a disability insurance policy depends on the length of the elimination period, the benefit period (how long a person can receive the disability benefit) and the severity of the definition of disability under the policy. Each policy can have its own definition of what qualifies as “disabled”, so it is important to understand these rules before purchasing a policy.
The two most common definitions are “own profession”, when a person is considered disabled if he is no longer able to exercise the profession he had before becoming disabled, and “any profession”, when a person is considered disabled if he is unable to do any work. Clearly, the definition of “any profession” is more stringent. All other things being equal, the policy with the strictest definition of disability will be the cheapest policy because there is less chance for an insurer to pay benefits under a stricter policy.
The US social security system has a very strict definition of disability and it may be difficult to qualify for disability payments under the program. There is, however, a social security disability provision called compassionate allowance which can speed up this process for very sick people. Employees who become disabled can benefit from this income insurance for at least one year. Income insurance payments begin on the sixth month of disability.