Understanding Disability Insurance: Coverage & Short-Term Options

Disability insurance provides income when a worker is injured, gets sick or is unable to work. Disability income is not typically as much as a worker's salary but is based on a percentage of his wages. Disability coverage is among the most expensive types of insurance due to the high number of claims against such policies.

Short Term Disability

Short-term disability covers workers who are initially disabled, or disabled for a short time. An employer may pay the premiums for short-term disability through a plan that covers all employees. The typical waiting period for a disabled employee to receive benefits is two weeks, and coverage lasts between six months and two years. Benefit payments are between 80 and 100 percent of salary.

Long Term Disability

Long-term disability commonly has more restrictions than short-term disability. Policies define disability in terms of whether a worker can perform customary job duties or any work. Benefits are often limited to 70 percent of the worker's salary. The average waiting period for disability insurance payments is 90 days. Many policies pay benefits for a fixed period such as five years, but others will continue to provide disability income up to age 65.

Employer Group Plans

Employers often bear the cost of disability insurance premiums for all workers through a group coverage plan. Group plans paid by employees are generally less expensive than individual policies purchased by employees. Insurance companies charge premiums based on the employment hazards at a given workplace. Office employees pay less than construction workers, for example. The benefits paid to employees are not taxable income if the employee paid the premiums, but benefits are taxed if the employer paid.

Individual Coverage

The cost of individual disability coverage is often prohibitive despite a person's occupation. Individual plans offer greater flexibility to make policy changes and to define coverage for paying benefits if you are not able to perform your current job tasks, even if you are able to earn income through another job. Individuals are often subject to a probationary period before coverage begins. This prevents carriers from immediately paying disability income for ongoing recoveries or pre-existing conditions.