Insurance & Investments / Disability Income Insurance
Disability Income Protection: What are the different types?

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Disability insurance covers things like serious accidents, but it also includes a wide variety of medical conditions – which can be serious but also relatively common, such as heart disease, stroke, cancer, diabetes, multiple sclerosis, lupus or rheumatoid arthritis. In terms of seeking out insurance protection against the financial effects of a future disability, consider it as income replacement insurance.

The term “disability" can be slightly confusing, especially when applied to different types of insurance. Descriptions abound – short-term, long-term, government, state, group, individual, and supplemental disability insurance.1

The following questions address the different forms of income replacement insurance.

What are U.S. Government Disability Benefits? 

Government-provided disability is available to Americans (and in narrow circumstances, certain non-U.S. citizens) as part of the federal government’s Social Security Administration benefits, known as Social Security Disability Insurance, or SSDI.2

How do I apply for Government Disability Benefits? 

You can qualify for this assistance if you are judged to be disabled by U.S. federal standards. While there’s a maximum limit per person of $2,635 per month, the average person receives just $1,166 per month – under $12,900 per year. These benefits are widely claimed. In a 2013 article, NPR found that over 14 million Americans were collecting a federal disability check.3

What are State Disability Benefits?

A handful of states mandate employers to provide short-term disability insurance, which would pay a portion of your missing income up to certain financial and time limits.

For instance, New York State will pay 50% of your wages for up to 26 weeks out of a 52-week period for an approved disability claim, whether you had the disabling incident or illness at work or not, and the coverage includes pregnancy. Note that there’s a top limit payable of $170 per week.3

Does my state offer short-term disability insurance?

Currently the states of California, Hawaii, New Jersey, New York, Rhode Island, and Puerto Rico require employers to offer a form of short-term disability, but each has its own requirements and limits. For information, visit your state government website.

What is Individual Disability Income Insurance? Is it included with State or Government disability insurance?

Insurance companies provide private long-term coverage to make sure your paycheck is protected if you become too sick or injured to work (typically until age 65 or older). This coverage is separate from any federal or state disability insurance, and is viewed as the most robust in terms of how much income it can cover.4

How does individual disability income insurance protect me?

Individual disability income insurance helps to replace income lost if an illness or injury prevents you from working. It may also allow you to add optional features that can protect your student loan payments, help your protection keep up with inflation, and help protect your retirement contributions.5

Can I sign up for individual disability income after I’m disabled? 

As with all private insurance, your policy must be in effect – meaning set up and paid – and the elimination period (time between a disability and payment) must be met before it will pay on a claim. In other words, you can’t wait until you get sick or have an accident to start paying for your insurance. Wonder how much this will cost? Getting a quote is a good way to start planning to protect your income.

Should I get Group Disability Insurance offered through my employer? If so will I have to pay for it?

Many companies and other organizations wish to look after their employees by providing disability coverage as part of their workplace benefits packages. In some cases, the company pays for the benefit, and in others the employees pay for a portion or all of the coverage. Group disability insurance is generally offered as two-part protection: short-term and long-term coverage. These policies normally pay about half of your monthly salary.

What is Supplemental Disability Income Insurance?

If you or your loved ones depend upon more of your income than is provided for from group disability insurance, consider a supplemental policy if it’s offered at work. These policies will provide more robust income replacement options, which might include bonuses or commissions. Supplemental disability income insurance is often purchased by people who want to protect more of their income. 

What’s important to know?

It pays to find out how far your income replacement coverage would go in maintaining your lifestyle if you were unable to work, even if for a few months. If you have coverage through your workplace, make sure to talk over any issues with your company benefits administrator or HR professional. You may be able to purchase additional protection to account for the real expenses you’re likely to incur while out of work. If you’re purchasing coverage for your employees, or for yourself, find a reputable insurance provider with experience and a good history of reliability in this specific area. Look for exemplary financial ratings, such as AA+ or AAA, which indicate that the company has sufficient assets to meets its obligations and is being run soundly.* 

Contact a knowledgeable financial representative from a reputable firm before signing any contracts.

Bonny G. Rafel, LLC Staff, “Overview: Short Term Disability, Long Term Disability and Social Security Disability Benefits,” 2017

Dora Mekouar, “1 in 5 Americans Has a Disability; Here’s the Most Common One,” July 31, 2015

Chana Joffe-Walt, “Unfit For Work: The Startling Rise of Disability in America,” 2013

New York State, “Introduction to the Disability Benefits Law”

Ron Lieber, “Looking Out for Yourself With Disability Insurance,” Sept. 12, 2014

*Ratings are subject to change without notice