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. It encompasses paid sick leave, short-term disability benefits (STD), and long-term disability benefits (LTD). 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.
In the late 19th century, modern disability insurance began to become available. It was originally known as "accident insurance". The first company to offer accident insurance was the Railway Passengers Assurance Company, formed in 1848 in England to insure against the rising number of fatalities on the nascent railway system. It was registered as the Universal Casualty Compensation Company to:
- ...grant assurances on the lives of persons travelling by railway and to grant, in cases, of accident not having a fatal termination, compensation to the assured for injuries received under certain conditions.
The company was able to reach an agreement with the railway companies, whereby basic accident insurance would be sold as a package deal along with travel tickets to customers. The company charged higher premiums for second and third class travel due to the higher risk of injury in the roofless carriages.
Individual disability insurance
Those whose employers do not provide benefits, and self-employed individuals who desire disability coverage, may purchase policies. Premiums and available benefits for individual coverage vary considerably between companies, occupations, states and countries. In general, premiums are higher for policies that provide more monthly benefits, offer benefits for longer periods of time, and start payments of benefits more quickly following a disability claim. Premiums also tend to be higher for policies that define disability in broader terms, meaning the policy would pay benefits in a wider variety of circumstances thus covering more insurances that the individual was going to purchase. Web-based disability insurance calculators assist in determining the disability insurance needed.
High-limit disability insurance
High-limit disability insurance is designed to keep individual disability benefits at 65% of income regardless of income level. Coverage is typically issued supplemental to standard coverage. With high-limit disability insurance, benefits can be anywhere from an additional $2,000 to $100,000 per month. Single policy issue and participation (individual or group long-term disability) coverage has gone up to $30,000 with some hospitals.
Business overhead expense disability insurance
Business Overhead Expense (BOE) coverage reimburses a business for overhead expenses should the owner experience a disability. Eligible benefits include: rent or mortgage payments, utilities, leasing costs, laundry/maintenance, accounting/billing and collection service fees, business insurance premiums, employee salaries, employee benefits, property tax, and other regular monthly expenses.
National social insurance programs
In most developed countries, the single most important form of disability insurance is that provided by the national government for all citizens. For example, the UK's version is part of National Insurance; the U.S.'s version is Social Security (SS)—specifically, several parts of SS including Social Security Disability Insurance (SSDI) and Supplemental Security Income (SSI). These programs provide a floor beneath all other disability insurance. In other words, they are the safety net that catches everyone who was otherwise (a) uninsured or (b) underinsured. As such, they are large programs with many beneficiaries. The general theory of the benefit formula is that the benefit is enough to prevent abject poverty.
In addition to federally funded programs, there are five states which currently offer state funded Disability Insurance programs. These programs are designed for short term disabilities only. The coverage amount is determined by the applicant's level of income over the previous 12 months. The states which currently fund disability insurance programs are California, New York, New Jersey, Rhode Island, and Hawaii.
Employer-supplied disability insurance
One of the most common reasons for disability is on-the-job injury, which explains why the second largest form of disability insurance is that provided by employers to cover their employees. There are several subtypes that may or may not be separate parts of the benefits package: workers' compensation and more general disability insurance policies.
Workers' compensation (also known by variations of that name, e.g., workman's comp, workmen's comp, worker's comp, compo) offers payments to employees who are (usually temporarily, rarely permanently) unable to work because of a job-related injury. However, workers' compensation is in fact more than just income insurance, because it compensates for economic loss (past and future), reimbursement or payment of medical and life expenses (functioning in this case as a form of health insurance), and benefits payable to the dependents of workers killed during employment (offering a form of life insurance). Workers compensation provides no coverage to those not working. Statistics have shown that the majority of disabilities occur while the injured person is not working and therefore is not covered by workers' compensation.
Newsweek magazine's cover story for March 5, 2007 discussed the problems that American veterans of Afghanistan and Iraq wars have faced in receiving VA benefits. The article describes one veteran who waited 17 months to start receiving payments. Another article, in The New York Times, points out that besides long waits, there is also variation based on the veteran's state of residence and whether he/she is a veteran of the Army, National Guard, or Reserves. The Newsweek article says that it can be difficult for a veteran to get his or her claim approved; Newsweek described the benefits thus:
- "A veteran with a disability rating of 100 percent gets about $2,400 a month—more if he or she has children. A 50 percent rating brings in around $700 a month. But for many returning servicemen burdened with wounds, it is, initially at least, their sole income."
The 2007 figures cited above correspond in 2012 to $2,673 a month (more with children) and, for the 50% rating, $797 a month for a single veteran.
According to a sidebar in the same Newsweek article, the Americans injured in these wars, for all the obstacles to proper care, will probably receive much better compensation and health care than equally injured Afghan or Iraqi soldiers.
- Business overhead expense disability insurance
- Disability pension
- Health insurance in the United States
- Right to social security
- State Disability Insurance (California)
- State disability benefits
- Social Security Disability Insurance
- Total permanent disability insurance
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- "Disability Statistics" (PDF). National Treasury Employees Union - Chapter 78. March 12, 2009.
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- "Railway Passengers Assurance Company Ltd". Retrieved 2012-12-17.
- A. P. Woodward (March 1917). "The Disability Insurance Policy". The Annals of the American Academy of Political and Social Science. 70 (1): 227–237. Retrieved January 4, 2014.
- "LIFE Foundation | Disability Insurance Needs Calculator". Lifehappens.org. Retrieved 2011-08-14.
- "Common Causes of Disability; Cancer, Heart Disease, Diabetes, Arthritis and Lifestyle Choices". Disabilitycanhappen.org. Retrieved 2011-08-14.
- Urbina, Ian; Ron Nixon (2007-03-09). "Veterans Face Vast Inequities Over Disability". The New York Times. Retrieved 2007-03-09.
- Ephron, D; Childress, S (March 5, 2007). "Forgotten Heroes". Newsweek. 149 (10). pp. 28–37. ISSN 0028-9604. PMID 17380811.
- Dehghanpisheh, B (March 5, 2007). "Untreated Wounds". Newsweek. 149 (10): 34. ISSN 0028-9604. PMID 17380812.
- Social Security Administration (US)
- Chana Joffe-Walt (March 2013). "Unfit for Work: The startling rise of disability in America". NPR.