Types of Disability Insurance
There are two basic types of disability insurance.
- Long term disability insurance offers a worker a portion of their salary if they are unable to work for a longer period—typically a period of over six months.
Both short term and long term disability policies have a period that a person must be disabled for before that individual is able to start receiving disability benefits. That period of time is called an elimination period. If a person becomes disabled, they must wait until the elimination period is over before they start receiving benefits. If they are able to work before the elimination period is over, the person will not receive a benefit.
The Social Security Administration also provides disability insurance. Employees who’ve paid the Federal Insurance Contributions Act (FICA) tax for a certain amount of time, are eligible to receive the Social Security disability income insurance if they meet the strict requirements of disability under the OASDI program. Disability insurance is also referred to as disability-income insurance.
How Disability Insurance Works
Disability insurance comes in many forms and can be obtained through a wide range of providers for a wide range of prices. The price of a disability insurance policy depends on the length of the elimination period, the benefit period (how long a person is able to receive the disability benefit), and how strict the definition of disability is under the policy. Each policy can have its own definition of what qualifies as “disabled,” so it is important to understand these rules before buying a policy.
The two most common definitions are “own occupation,” where a person is considered disabled if they are no longer able to perform the occupation they had prior to becoming disabled, and “any occupation,” where a person is considered disabled if they are unable to perform any job at all. Obviously, the “any occupation” definition is more strict. All else equal, the policy with the more strict definition of disability will be the cheaper policy because there is less of a chance of an insurer having to pay benefits under a stricter policy.