What Small Businesses Should Know About Disability Insurance?
Like many other types of insurance, disability insurance is something you hope you won’t need, but you’ll be glad you have if something goes wrong. Up to 43% of people who are 40 years old will have a long-term disability by the time they are 65 years old.
Long-term disability insurance is not something you have to offer as an employer. But, according to the Insurance Information Institute, about half of large and medium-sized employers offer it to their workers.
What is Disability Insurance?
Disability insurance, also called disability income insurance, gives people money when they can’t work because of an accident, illness, disability, or other reason. People can get disability insurance from their employers, the Social Security Administration, or private insurance companies.
In exchange for your monthly payments, the insurance company promises to pay you a monthly benefit if you get sick or hurt and can’t work. Disability insurance and workers’ compensation insurance are not the same thing.
Northwestern Mutual wrote that workers’ compensation covers injuries and illnesses that happen at work, but disability income insurance also covers things that happen outside of work.

Workers’ compensation pays for medical bills related to the illness or injury and replaces some of the wages you might lose because of it. After that, disability insurance starts to pay out.
The word “disability” leads to a lot of confusion when it comes to disability insurance. There are two different kinds of disability insurance: short-term and long-term.
Short-term Vs. Long-term Disability Insurance
As the name suggests, short-term disability insurance covers employees if they get sick, hurt, or have some other kind of disability that keeps them from working for a short time. After wage insurance, short-term disability insurance kicks in.
This means that you may have to wait up to 14 days before you can get benefits. The most that short-term disability insurance will cover is two years. Long-term disability insurance covers things that last longer or for the rest of your life. After short-term disability benefits are paid out, these policies take effect.
A common misunderstanding about long-term disability insurance is that it will only help in the worst cases of illness or injury, like freak accidents or rare birth defects.
In reality, “90% of claims for long-term disability benefits come from medical illnesses, not physical injuries,” wrote Breeze, a disability insurance product. There are more kinds of disabilities than you might think that can make it hard for someone to make a living.
What Benefits Does Disability Insurance Offer?
It’s important to know that disability insurance won’t pay an employee’s full salary and may not protect their job. Most disability insurance policies pay out 60–80% of what the person was making before the accident, illness, or injury.
When setting up a disability insurance policy, a private insurance company or the Social Security Administration will look at a few things. When figuring out how dangerous something is, these groups will look at:

- Your age, gender, and the history of your health.
- Your job and how much you make each year.
- Where you are.
- Any health problems that were already there.
- Your family (for example, do you have kids under 18?).
The Social Security Administration has an online list of the information you need to apply for adult disability income insurance. This can give you an idea of the information you will need to sign up for a government policy.
If you live and work in California, Hawaii, New Jersey, New York, or Rhode Island, you may also be covered by state disability insurance. These states have programs called “Temporary Disability Insurance (TDI)” that help people who are out of work because of an illness or injury that is not related to their job.
If you own a business in one of these states, you could also help your employees find out more about TDI programs and whether or not they qualify for coverage.
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