Disability Insurance

Disability insurance is an important type of coverage that protects workers in the event they can no longer work. It provides a percentage of income for a few months or indefinitely, depending on the policy. Laws govern employer-offered disability and the process for making claims and appeals.

What is Disability Insurance?

Disability insurance is a policy that provides income for workers after an injury or illness leaves them unable to work. Many employers offer short-term and long-term disability insurance as part of a comprehensive benefits package.

Individuals can also buy their own disability policies, but they tend to be costly. Employers often include disability insurance as a benefit because it is valuable to workers and attracts good employees. There are two main types of disability insurance:[1]

  • Short-term disability insurance. A short-term policy covers injuries or illnesses that keep you from working for a short period of time, typically a few months or up to a year. Most policies have a waiting period before you can begin receiving benefits. Short-term disability is expensive to purchase individually.
  • Long-term disability insurance. Long-term disability covers income for long-term or permanent disabilities. It kicks in when short-term policies run out. As with short-term disability, a long-term policy has a waiting period, usually 90 days, before payments begin. Policies pay for long periods of time, from a couple of years to when the worker turns 65 or even for life.

Disability policies vary, but most have limitations and exclusions. For instance, most plans cap benefits for mental illnesses at 24 months. Substance use disorders may not be covered at all. Almost all policies exclude pre-existing conditions.

How Much Does Disability Insurance Pay?

Disability policies do not cover a worker’s entire income. Short-term policies usually cover more, up to 70% of the pre-disability income. Most long-term policies pay less, anywhere from 40% to 70% of the pre-disability income.

How Much Does Disability Insurance Cost?

Premiums for disability insurance vary considerably. Short-term policies are generally more expensive. The cost of any disability policy depends on:

  • The industry, occupation, and risk level for the worker
  • The health of the worker
  • Lifestyle habits, like smoking
  • The level of monthly benefits

The more benefits you want from a policy, and the more likely you are to become disabled or get seriously ill, the more expensive it is. Some policies can amount to thousands of dollars per year. Most people get disability insurance through their employers for this reason. Premiums for group coverage are more cost-effective.

ERISA and Employer-Offered Disability Insurance

ERISA is the Employee Retirement Income Security Act of 1974. Congress passed the law to protect employee pension funds, but the law extends to all types of employer-provided benefits, including disability insurance.

The law protects workers by requiring employers to comply with several rules and guidelines for their benefits packages. Employers do not have to offer benefits, but if they do, they must:

  • Provide workers with detailed information about their benefits
  • Provide employees with a written policy describing how to file claims and how to appeal denials of claims
  • Ensure that appeals of claims are conducted in a fair and timely manner
  • Provide plans and benefits that are in the best interests of the employees
  • Ensure that employees do not experience discrimination in trying to claim benefits

If employees pay the entire cost of their disability insurance, the employer is not covered by ERISA. Your human resources department can tell you if your insurance policy is covered by ERISA.

How Do Other Benefits Affect Disability Insurance?

There is a lot of variation in disability insurance policies, so it is important to understand your policy’s terms. One issue that may arise is how other types of disability benefits impact your disability insurance payments.

Depending on circumstances, if you become disabled, you may be able to receive Social Security disability benefits or workers’ compensation benefits. Your disability insurance policy will likely deduct these additional benefits from what it will pay out.

Why Do Disability Benefits Get Denied?

It’s not a bad idea to have an experienced disability lawyer help you file a claim for benefits. The rules and requirements can be complicated, and it’s easy for a good case to result in a denial.

Here are some of the common reasons insurance companies deny disability benefits:

  • Insufficient medical evidence to show you are disabled or cannot work
  • Lack of objective evidence
  • Failure to comply with treatment
  • Failure to meet a specific policy’s definition of disabled
  • Missed deadlines
  • Mistakes made on the claims forms
  • The existence of video surveillance showing you are not disabled
  • A condition not covered by the policy
  • Failure to stay in communication with the insurance company processing the claim
  • A pre-existing condition

What Can I Do if My Benefits Are Denied?

If you have an ERISA-backed group policy for long-term disability, you must follow all the internal procedures for appealing a denial. Your employer should make it clear what this process is and the time limits.

Once you go through the appeals process, you will get an answer. If your claim is still denied, you can take further legal action. You may file a lawsuit under ERISA and take your case to an administrative law judge. It’s best to have a lawyer to represent you through this process.

If you have an individual policy, not paid for by an employer, and not covered by ERISA, you are not bound to the administrative appeals process. You may try to work with the insurance company or go straight to a lawsuit.

Can I Work While Receiving Disability Benefits?

Disability insurance benefits generally end when you return to work, but there are some exceptions. Some policies, known as “own occupation,” provide benefits as long as you are too disabled to work in your chosen profession. If you can work in another position, you can likely keep your benefits until you begin earning a certain amount, such as 80% of your pre-disability income.

If you have an “any occupation” policy, you can only receive benefits if you cannot work in any job suited to your skills and training. Many policies that are “own occupation” revert to “any occupation” after 24 months.

Disability insurance is an important type of protection for workers. If you are unable to work, you can file a claim for benefits. If you receive a denial, talk to a disability insurance lawyer about your options.

  1. The Hartford. (n.d.). Short-Term versus Long-Term Disability Insurance Coverage.
    Retrieved from: https://www.thehartford.com/business-insurance/strategy/disability-insurance/short-term-vs-long-term