Disability Insurance, often called DI or disability income insurance, or income protection, is a form of insurance that insures the beneficiary’s earned income against the risk that a disability creates a barrier for a worker to complete the core functions of their work. For example, the worker may suffer from an inability to maintain composure in the case of psychological disorders or an injury, illness or condition that causes physical impairment or incapacity to work. Statistics show that in the US a disabling accident occurs, on average, once every second. In fact, nearly 18.5% of Americans are currently living with a disability, and 1 out of every 4 persons in the US workforce will suffer a disabling injury before retirement.
Disability policies can be individual or part of a group. They can be Short Term typically with a benefit period of 3 to 24 months or they can be Long Term, covering an individual up to age 65. Disability income policies typically provide up to 60% replacement of wage. These policies can be paid for my an employer or be part of a voluntary benefit in a workplace. They can also be purchased by individuals.
There are three basic components of a disability policy: the benefit period, the elimination period and the monthly benefit.
The benefit period is the length of time the policy will cover an individual on claim.
Elimination period is a term used in insurance to refer to the time period between an injury or sickness and the receipt of benefit payments. In other words, it is the length of time between the beginning of an injury or illness and receiving benefit payments from an insurer.
Monthly benefit is the amount of money the policy will pay when an accident or illness makes a person unable to work. The monthly benefit is determined by a person’s gross wage as a w-2 employee and by adjusted gross or net wage as a self employed individual.