Types of Coverage

Employee Benefits and Group Coverage

For short-term illness or injury, your employer may offer sick leave or short-term disability insurance (or both). Employee sick leave and short-term disability coverage can range from a few days to six months or more, depending on the extent of benefits and the length of your employment.

Group long-term disability coverage—offered through some employers—replaces part of your salary if you are unable to work for an extended time. A typical group policy pays at least half of your salary up to a specified limit, such as $5,000 per month. Such coverage would begin when the short-term disability benefits from your employer stop.

Benefits from group policies generally continue until either age 65 or your retirement age under Social Security or until you are able to return to work. In some policies, benefits may also be available for a specified period after your return to work. Group coverage lasts only as long as you are employed or remain a member of the group.

Social Security Benefits and Other Resources

Social Security provides long-term disability benefits based on your salary and the number of years you have worked and contributed to the Social Security system. However, Social Security replaces only a limited portion of your salary and the qualifications to receive benefits are very strict. To be eligible for Social Security disability benefits, all of these conditions must be met:

  • You have been disabled for five full calendar months.
  • Your disability must be expected to last at least 12 months or end in death.
  • You must be unemployable at any occupation, not just your own occupation at the time of your disability.

Other programs besides Social Security are sometimes available to those who have become disabled. You may qualify for:

  • Workers’ compensation for work-related injuries or illnesses (required in all states).
  • Special disability programs for veterans injured in war, miners who develop black lunch disease, railroad employees, or federal and state government workers.
  • State vocational rehabilitation programs.
  • Automobile insurance benefits for a disability from an auto accident.
  • Temporary disability programs available in California, New York, New Jersey, Rhode Island, Hawaii, and Puerto Rico.

Individual Coverage

Before purchasing an individual disability income insurance policy, evaluate your income needs as well as the benefits you may be eligible for from your employer, the government, or other programs. If you decide that you and your family will benefit from additional financial protection, a long-term disability income policy might be right for you.

Individual Policy Features

  • Some policies pay benefits if you are unable to perform the major duties of your own occupation. Other policies pay benefits if you are unable to perform the duties of any occupation for which you are reasonably qualified by education, training, and experience. Many policies combine these features, providing “own occupation coverage” for one or two years and “any occupation coverage” after that.
  • Some policies require total disability before beginning payments while other policies cover partial disability.
  • Some policies pay benefits if you become ill or injured and are unable to earn a specified amount, such as 60-80 percent of your income.
  • Some policies pay “residual” benefits. These benefits make up loss of income if you are able to work but your disability prevents you from performing your normal responsibilities.
  • The amount you would receive if disabled varies by policy. Policies that pay 50-60 percent of monthly salary are most common but some pay as much as 70-80 percent. Most policies do not replace commission or bonus income. How long you receive benefits varies by policy. Some individual policies pay benefits for a specified period, such as two or five years, while others pay benefits until age 65 or your retirement age under Social Security.
  • Policies have different elimination—or waiting—periods before they pay benefits. You can lower your premiums by waiting 90 days, six months, or even longer before starting to receive benefits.
  • Under some policies, the insurer pays for job training or modifications to your work space.
  • If you go back to work after recovering from a disability and suffer a relapse within a specific time, most policies do not impose a second waiting period.
  • Some policies, as an optional benefit, offer cost-of-living adjustments to the amount you receive.
  • Most individual policies are either noncancellable or guaranteed renewable. With a noncancellable policy, premiums can never be increased. Under a guaranteed renewable policy, premiums cannot be increased based on an individual circumstance, but they can be raised for an entire class of policyholders. A guaranteed renewable policy may define how a class is determined—for example, all policyholders in a state who own the same type of policy might constitute one class. It is important to know how classes are defined and the circumstances under which premiums can be raised.
  • Most companies review an individual’s medical and financial history and consider disability coverage a person already has before issuing a policy. Based on this review, an insurer may offer limited or modified coverage.
  • Policies have level premiums (intended to stay constant over the life of the policy) or premiums that increase as you age. If you plan to keep your policy for the long term, a level premium policy may be best. If you are uncertain about how long you will need the insurance, a policy with premiums that increase with age may be a better choice.
  • Individual long-term disability income insurance provides protection for as long as you continue to pay the premium.
  • If you purchase your own policy, disability benefits typically are not subject to income taxes. Benefits are taxed, however, if your employer pays for your coverage.

Publications and Resources

Private Long-Term Disability Income Insurance (PDF). This fact sheet explains how private long-term disability income insurance offers paycheck protection and complements the safety net provided by the Social Security Disability Income program. (2018)

Disability Income Insurance: Financial Protection for You and Your Family. This guide outlines the features and costs of individual disability income insurance and offers tips and a checklist on buying the right policy for you. (2014)

Protection for the Unexpected. A serious illness or injury can harm more than your health--it can have an impact on your ability to work and meet your family's living expenses. This article explains how disability income insurance can help you avoid depleting your savings.