Group Disability
To help provide income in the event of disability, many employers offer their full-time employees group short and long-term disability coverage as a benefit. Clearly, there is a benefit to the employees covered under the plan but there is a benefit to the employer as well by shifting the burden of the decision-making process, who to keep on payroll and for how long, to an insurance provider. Premium cost is a combination of occupation’s claim history, age of the workforce, and salaries of the insured. Most plans will cover sixty percent of the insured’s salary. It is important to note that history has shown that a properly designed disability plan will reduce worker’s compensation claims. Lastly, only five states offer disability coverage. California, New Jersey, New York, Rhode Island and Hawaii. If a disability occurs in a state without disability coverage the only option is Social Security. Typically, Social Security provides a small benefit and it is difficult to obtain.
There are three basic types of disability insurance.
Employer Based
Many employers shift the disability risk to private insurers. This would fall into the employer sponsored group disability category. Employers may cover the cost entirely or a portion of the cost and offer it on a voluntary basis. Typically, these plans are intended to cover about 60% of the earnings. Employers usually offer long-term and short-term disability plans. Most plans cannot be taken with when you break service.
Individual Disability
Several companies offer individual disability coverage. Many of these companies are fairly restrictive about the professions that they will accept. For example, coverage may be offered to dentists and doctors but not offered to roofers and construction workers. Be aware that some offerings are “own occupation” (meaning that if you can’t work in your profession you are considered fully disabled). The other definition is simple disability meaning that if you can do any work you are not disabled.
Disability Insurance offered through an Association
Many professional associations offer coverage to individuals at a discounted group rate. Examples of this coverage is the disability offered through the pilot’s association or accounting profession. These associations are easy to insure since the professions do not have a high history of disability.