Disability Insurance

Disability insurance is a type of insurance product that provides supplementary income in the event of an injury or illness resulting in a disability that prevents the insured from working at their regular employment. Benefits are generally provided on a monthly basis so that the person can maintain their lifestyle and continue to pay their expenses.


There are six types of disability insurance, individual disability insurance, high-limit disability insurance, key-person disability insurance, business overhead disability insurance, Social Security disability insurance, and employer-supplied disability insurance. Disability insurance should be added to a financial and business plan depending on the type of insurance. Individual disability insurance is available to workers whose employers do not offer disability insurance, or is available to self-employed individuals who want disability coverage, are allowed to purchase this policy.


Benefits and premiums for individual coverage are different between companies, occupations, states and countries. Generally, premiums are higher for policies that provide more monthly benefits, offer benefits for longer time period, and start payments of benefits more quickly following a disability claim. However, premiums might also be higher for policies that define disability in broader terms, meaning the insurance policy would pay benefits for a wider selection of circumstances. Individuals can consult with an insurance broker or use a disability insurance calculator to assist in determining the amount of disability insurance needed.


High-limit disability insurance was created to maintain that individual disability benefits can only be 65% of income regardless of income level. High-limit disability insurance is usually issued as a supplement to standard disability coverage. Under high-limit disability insurance, benefits can range from an additional $2,000 to $100,000 per month.


Key-person disability insurance offers benefits to protect a company from financial hardship that might result from the loss of a key employee due to disability. Under key-person disability insurance, the company is allowed to use the benefits to hire a temporary employee if the disabled employee’s disability appears to be short period. If permanent disability of an employee occurs, benefits are used to help cover costs related to hiring a replacement, including recruitment, training, startup, loss in revenue and unfunded salary continuation costs.


Business overhead disability insurance compensates a business for overhead expenses if the owner becomes disabled. Rent or mortgage payments, utilities, leasing costs, laundry/maintenance, accounting/billing and collection service fees, business insurance premiums, employee salaries, employee benefits, property tax, and other regular monthly expenses are all benefits covered under this insurance.


Social Security disability is a program offered by the Social Security Administration that insures a worker in case of an illness or accident. Employees, who have paid the Federal Insurance Contributions Act (FICA) tax for a certain period of time, are eligible to receive the Social Security disability income insurance.


Employer-supplied disability insurance is insurance offered by employers, generally known as workers’ compensation. This type of insurance provides payments to employees who are temporality unable to work because of a job-related injury. However, workers’ compensation is more than just income insurance, because it pays for economic loss, reimbursement or payment of medical and life expenses, and benefits payable to the dependents of workers killed during employment. Workers’ compensation does not provide coverage to people not working.