What It Is
Disability insurance is a type of private insurance that provides supplementary income to individuals who are unable to work due to illness or injury. The program is managed by the Social Security Administration and is intended for workers who have consistently paid the required FICA (Federal Insurance Contributions Act) tax that funds Social Security and Medicare. It differs from worker’s compensation insurance in the sense that the illness or injury does not have to be work-related.
Who It’s For
Although each policy is different, these plans are designed to help the insured pay their bills and maintain their standard of living. For this reason, virtually everyone can benefit from having a policy. Even if an worker’s job isn’t particularly risky, they can still have a serious car accident. Furthermore, there’s no guarantee they won’t develop arthritis, chronic back pain or cancer. If any such condition causes them to switch to a lower-paying job, work fewer hours, or not at all, they would benefit from disability coverage.
Types of Coverage Available
There are two types of disability coverage: short-term (STD) and long-term (LTD). STD takes over when sick leave runs out and will typically cover the individual for up to one year. LTD takes over when STD runs out and may continue for a period of years, or until the recipient turns a specific age (such as 65), depending on the plan. The term length and amount of benefits provided depend on which plan the individual has at the time it’s needed.
Benefits of Coverage
Disability insurance ensures that the worker receives money to pay for their bills and other needs, avoiding major problems like foreclosure and repossession. The individual’s income is thus protected, ensuring that they can still provide for their family. Another major advantage is that these payments do not affect benefits received from any government-administered plans. This makes it possible to have even more money left for therapy or medications.