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Disability Income Insurance
Disability income insurance partially replaces income if you are unable to work due to accident or illness.
Disability insurance is available in short-term or long-term policies. It is cost-effective way to provide added financial security for workers, particularly in an uncertain economy. For self-employed business owners it is essential income protection.
- Likelihood of disability
- Short-term disability
- Long-term disability
- Costs and eligibility
- Business insurance
Likelihood of disability
There is a growing need for disability insurance:
- Over a career span, an employee is 3.5 times more likely to become disabled than to die and need life insurance (Health Insurance Association of America)
- 48% of home foreclosures are due to disability; only 3% due to death (US Housing and Home Financing Agency)
- one in five working Americans suffers the effects of a disability for more than 6 months during his/her career (National Health Underwriters)
Disability is increasing among those aged 18-64. Conditions that used to be fatal may now be treatable but disabling, such as many cancers and HIV/AIDS.
Short-term disability
Short-term disability insurance covers short periods of unemployment due to illness or injury. Income replacement is a percentage based upon the employee's wages, usually 60%.
- Most California wage earners are covered by law through the State Disability Income (SDI) program, which has a 7-day wait period until the claim is payable. CA SDI pays up to 52 weeks of benefits per claim. Visit the California site for information on SDI.
- Self-employed professionals and business owners can purchase elective SDI coverage through the state, which covers up to 39 weeks of benefits, or purchase their own private insurance.
- Companies can also choose to their own group disability insurance through the private market.
Request a quote for private insurance here.
Long-term disability
Long-term disability insurance protects income against long-term illness or injury. Many people mistakenly believe Social Security will cover them or their employees if they become disabled, however Social Security's eligibility definition is very stringent.
For self-employed professionals and business owners, we recommend "own occupation" disability insurance. This insurance will pay benefits if you cannot work in your own occupation. "Any occupation" insurance will only pay if you cannot work in any occupation.
Long-term disability is generally available for periods from 1 year up to age 65. For personal long-term disability insurance it is necessary to medically qualify; group coverage is generally guaranteed issue.
Costs and eligibility
LTD policies are available for under 50 cents per thousand dollars of salary. Once issued, group policies are guaranteed issue - meaning all employees are eligible for initial enrollment at plan start or after hiring.
The group plan itself is not guaranteed and depends on industry/ occupation, company size and length of time in business, etc.
Individual policies require medical underwriting. Costs will vary with occupation and policy benefits.
Business insurance
Business owners and partners may want to purchase special disability policies to protect business income.