It’s no hidden fact that accidents happen -hundreds and thousands of them on a daily basis. The same goes for illnesses and diseases. As unfortunate as that sounds, it is the truth, and we must be prepared to face it. This is where disability insurance comes in. Both short-term and long-term disability insurance protect your income, and thereby your family, if you find yourself unable to continue working due to an injury or an illness.
About disability insurance
There are two kinds of disability insurance:
Short-term disability insurance
This replaces a part of your salary or paycheck for a short while, e.g. 3 to 6 months. Most employers offer short-term disability insurance for their employees. You could also get an individual policy through a private insurance company, but these plans are usually more costly than their true value.
Long-term disability insurance
This gives you coverage if you are unable to work for a more extended period of time, namely, years. Although this type of insurance may be offered by employers, you’ll find it is on very rare occasions. And in those rare cases, the coverage is never enough, which leads to employees buying supplementary long-term disability insurance policies. Alternatively, if your employer does not offer long-term disability insurance, you could purchase a plan independently through insurers.
Generally speaking, there are two categories of long-term disability insurance:
Own occupation disability insurance
This kind of policy is effective for a disability that makes a person specifically unable to perform his/her job, but can practice any other job. For example, a dancer who sustains a leg injury and can no longer dance, but gets a job as stage manager would qualify for benefits under this insurance policy.
Any occupation disability insurance
This type of insurance applies to someone who is unable to perform any job, including their own occupation. Although this policy is usually less expensive than its counterpart, it is usually more difficult to claim benefits out of it.
Long-term disability insurance does not go into effect straight away; there is a period of elimination that ranges from 30 to 365 days that you have to wait out first. This is why most people have short-term and long-term insurance policies simultaneously in the beginning. A long-term disability insurance plan generally pays out for 2, 5 or 10 years, or until you retire.
How long-term disability insurance works
Once you have found and purchased the right policy, and have started paying your premiums, then the policy is in effect. In the case where you are injured or are not well enough to work, here are the steps you need to take:
- File a disability claim: an insurance claim will usually inquire about your diagnosis (from your physician) and your job. The insuring company will then check the claim and either approve, deny it, or request more information. You need to be able to prove that you are unfit for work.
- Wait for the elimination period to pass: long-term disability plans require a waiting period between the claimant’s disability and when the coverage begins. This period is usually 30, 60 or 90 days. The longer the waiting period the lower the premium you have to pay. In any case, you will need to cover your medical costs out-of-pocket until the policy coverage kicks in.
- Get your benefits paid out: after your claim gets approved, and the elimination period has elapsed, you’ll start receiving your monthly benefits up for the pre-defined benefit period, which can last as little as 2 years or until retirement.
- Go back to work (when you are well enough for it): When are you are able and ready to go back to work, then the benefits will stop. It is worth mentioning that some will allow benefits to still be paid out if you can only partially return to your job or if you can only work a different job.
How short-term disability insurance works
Most short-term disability insurance policies can be obtained from employer plans. They are usually “guaranteed approval” plans, which means you will not have to go through a medical exam or the lengthy underwriting procedure that is linked to a long-term disability insurance policy. If you do decide to find a short-term disability policy independently through a private insuring company, you will most probably have to take a medical exam.
The amount of coverage you will get depends on each employer. Some will fully cover your expenses, some will only pay a part of them. Generally, insurance coverage only starts after you’ve been working for that certain employer for a certain period of time, or if you work 40+ hours a week. In some states, it is mandatory for employers to offer short-term disability insurance to their employees, such as California, New Jersey, and New York to name a few.
Most commonly, a short-term disability insurance plan will cover up to 80% of your gross income, and its benefits will cover a part of your income for 30 to 120 days, with a maximum period of 13 months. There are also sometimes limits of the number of monthly payments, so make sure to check those too. Covered disabilities do not cover injuries that were sustained at work, as these belong to workers’ compensation. But they do include chronic, non-work related conditions like heart diseases, back injuries and cancer. The coverage will start from one day to two weeks after your diagnosis; however, the exact length of the period could differ depending on whether you are injured or ill.
In order to qualify and receive the benefit payments, you will have to contact the insurer and place a claim, whether you are directly engaged with them or through your employer. Be sure to speak with an insurance broker or a human resources representative at your company to fully understand the terms of your short-term disability insurance plan.