Disability Insurance

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No one expects to suffer from a debilitating injury and lose their ability to work and cover daily expenses - but it happens. With Disability Insurance, you can give your employees and their families peace of mind in knowing that they won’t lose everything when something unplanned happens.

If an illness or injury puts you or one of your employees out of work, Disability Insurance ensures a continued source of income.

Read on to see if it’s is something you need for your business and employees.

What Disability Insurance Is All About:

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What Is Disability Insurance?

Disability Insurance covers a portion of an employee’s income when they lose their ability to work due to a non work-related illness or injury. There are two types: short-term and long-term disability plans. Employers can offer either or both depending on their needs.

Short-term disability covers a portion of the policyholder’s salary for a short period, which can vary depending on the policy. However, it’s usually covered for three to six months after the incident that left them disabled.

Long-term disability usually comes into play when the employee holding the policy is disabled to the point of being unable to work for at least six months. It can be extended for years, even until the policyholder retires or reaches the age of 65, in which case benefits will end.

Many business types should consider disability insurance particularly important. Physician disability insurance, for example, is important for healthcare professionals who recognize the difficulties that disabilities can impose on an individual. Disability insurance for self employed contractors is also a good idea, considering the many dangers that exist in contracting work.

Many policies also cover rehabilitation costs that help employees transition back into work faster.

What Does Disability Insurance Cover?

Getting Into the Details…

Short-term disability injury

If an employee is injured in an accident outside of work - like, for example, a car accident - they would be covered by disability benefits.

Long-term illness disability

If your employee is unable to work for an extended period of time longer than six months due to a non-work-related illness.

Maternity Leave

If your employee has a child through normal childbirth, they can receive short-term disability benefits.

Who Is Covered by Disability Insurance?

  • Your Employees

  • Your Business

Do I Need Disability Insurance?

You are required to carry short-term Disability Insurance for your employees if you live in a state where this type of insurance is mandatory. States that mandate professional disability insurance include:

  • California
  • Hawaii
  • New Jersey
  • New York
  • Rhode Island.

As a small business, you qualify for voluntary group disability policies if…

  • You employ three or more eligible employees (eligible employees must purchase supplementary health insurance that your business supports, meaning money is withheld from their paycheck to pay for the insurance)

This type of insurance comes in handy if…

  • You have employees, and want to offer them peace of mind that they’ll have income during a catastrophic injury or illness
  • You employ women of childbearing age who might benefit from paid maternity leave offered through short-term disability.

It’s important to note that some businesses do not qualify to offer voluntary disability policies to employees. These include:

  • Fishing, hunting and trapping companies
  • Slaughterhouses
  • Massage parlors
  • Gambling companies, like bingo establishments and video poker
  • Professional sports teams
  • Trucking companies hauling dangerous loads
  • Offshore oilfield services
  • Fruit and vegetable stands
  • Private detectives
  • Catering companies that use trucks
  • Boat and/or shipbuilding and repair businesses
  • Coin-operated amusement centers
  • Military services
  • Railroads
  • Pornographic book stores

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What Are the “Limits” on a Disability Insurance Policy?

Short-term disability benefits are typically paid from three to six months after an accident or illness that makes an employee unable to work. Long-term disability benefits can be extended for years, however they won’t apply once the policyholder retires or reaches age 65.

Disability benefits are usually limited to 60 percent of the employee’s wages from the previous year.

In addition to that...

It replaces income lost due to injury from a catastrophic accident or illness beyond 90 days. It generally replaces 60 percent of the policyholder's income from the previous year, up until retirement age (65 years old).

This type of insurance offers an important benefit if your business employs female employees of childbearing age: paid maternity benefits. Short-term disability covers normal childbirth, ensuring that your employees will be partially compensated while they are on leave.

You’ll Know It’s the Right Policy If It Covers:

  • Long-term and short-term disability benefits
  • Rehabilitative services
  • Workplace modification and security coordination assistance
  • An Employee Assistance Program (EAP)
  • Optional long-term disability services, such as personal care assistance, 401(k) contribution benefit, spouse disability and dependent disability.

What Does Disability Insurance Not Cover?

  • Work-related injuries

  • Mental and nervous disorders

  • Definition of “disability" by the carrier

How Much Does Disability Insurance Cost?

The cost of both long-term and short-term Disability Insurance usually falls between 0.25 and 0.5 percent of total compensation for companies of all sizes. As a small business owner, you should assess whether you can afford to offer both to employees. Offering this type of benefit is important for retention purposes, as rates for group plans are generally less expensive than individually-purchased policies. There’s also the benefit to the business of getting employees back to work as quickly as possible.

The rates for an insurance policy vary depending on the industry of your business. Disability insurance for physicians, for example, will not cost the same as for mail carriers. This is affected by the perceived risk of workers in your industry, as well as the stability of the workforce. However, the size of your business doesn’t matter: as a small business owner, you are subject to the same rate as a large national corporation. Physicians disability insurance for a small practice will therefore pay the same rate as a large, privately run hospital.

If you’re unable to provide and pay for group Disability Insurance to all employees, providing individual coverage or voluntary employee-paid coverage is an option that should be considered.

Additionally, many small business owners purchase personal insurance policies for themselves as a type of business overhead insurance. This ensures their business can run while the owner is recovering from a disability. It covers standard business expenses, typically including payroll, utilities, rent, etc. However, the salary of the business owner itself would not be covered.

Frequently Asked Questions

What’s the difference between short term and long-term Disability Insurance?

Short-term disability provides coverage after sick leave runs out, and usually has a short waiting period of a week or less. Depending on the plan, it usually lasts less than a year. Once that is exhausted and the employee is still unable to work due to a disability, then long-term disability will kick in. Long-term will last until retirement age if needed, or if the employee returns to work or is no longer disabled.

What are the benefits of Disability Insurance?

The biggest benefit of disability insurance is providing your employees with peace of mind in case they should become injured and can not work for some time. Since it replaces a portion of their income, they can continue to help support themselves and their families.

Do you need more coverage?

Equipment Breakdown

This insurance protects a broad range of equipment against breakdowns caused by motor burnout, power surges, boiler malfunction, and operator error. Equipment Breakdown covers the cost to replace or repair the damaged equipment, as well as other expenses incurred due to the damaged equipment.

Garage Liability

Small businesses in the auto trade industry need Business Garage Insurance to protect them from a variety of risks, including injuries, mistakes or property damage.

Pollution Liability

This specialized insurance policy covers liability associated with pollution. An Environmental Impairment policy may also cover cleanup costs.


This type of insurance helps you cover the losses resulting from criminal acts such as robbery, burglary and other forms of theft. Many businesses choose Crime Insurance policies that allow them to file claims for internal theft or other offenses with the potential to cause financial problems.

Employee Benefits Liability

This plan covers an employer in the event of an errors or omissions claim from an employee around a benefits plan. Errors and omissions covered in this plan can include failure to advise an employee of benefits they are entitled to, failure to enroll an employee, and giving incorrect advice in regards to benefits.

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