What Are the Functions of Disability Insurance?

Disability insurance provides income if you become disabled due to injury or illness and can no longer work. The insurance policy offers a way to replace at least a portion of the income that is lost when you are forced to forfeit the hourly wages or salary that you are accustomed to receiving.

Duration

Disability insurance plans include both short-term policies and long-term policies. A short-term policy provides you with a set percentage of your regular income when a disability prevents you from working for a relatively short period. The length of short-term policies vary, but they can range from a few days to a year, according to CNN Smart Money. A long-term policy typically serves to supplement a short-term policy. It covers more enduring disabilities, providing income payments after a short-term policy expires.

Plan Types

Disability insurance coverage comes in the form of both group plans and individual plans. Group plans are the policies that employers typically provide for their workers, while individual and supplemental plans represent the policies that you would purchase if you do not have an employer-provided group plan or if you wanted to supplement a group plan with additional insurance. The use of an individual or supplemental plan will help you garner a larger portion of your old income than a group plan usually will. According to CNN Smart Money, group plans routinely offer approximately 60 percent of a policyholder's former income, while the use of an individual or supplemental plan can lift that percentage as high as 80 percent.

Limitations

In general, disability insurance policies do not compensate you as well as your job, making it difficult for you to regain your customary income unless you are able to return to work. Some policies define qualifying categories of disability narrowly, so there is the danger of purchasing and paying the premium on a policy that is no help if a disability does occur. Even long-term policies also usually have caps on how long they will provide payments, either ending after a set number of years or when the policyholder reaches retirement age.

Social Security

Group disability insurance policy payments can be reduced if you are receiving Social Security disability payments. Social Security offers two forms of disability benefits. Social Security Disability Insurance provides payments to disabled workers who have worked long enough and recently enough to meet federal guidelines. The specific work experience requirements depend on the age of the worker when he becomes disabled. The amount of the payments depends on your lifetime earnings. Social Security also provides payments through the Supplemental Security Income program, which serves low-income adults and children with disabilities.

 

About the Author

Tom Gresham is a freelance writer and public relations specialist who has been writing professionally since 1999. His articles have appeared in "The Washington Post," "Virginia Magazine," "Vermont Magazine," "Adirondack Life" and the "Southern Arts Journal," among other publications. He graduated from the University of Virginia.