Disability insurance: a primer on coverage

  • Disability insurance comes in three flavors.
  • Women generally pay more for individual policies.
  • What you pay depends on age, health and other factors.

The economic toll of disabling injury can range from budget tightening to compensate for lost wages to filing for bankruptcy. A counterweight to financial hardship is disability insurance.

The Insurance Information Institute in New York estimated in 2009 that 43 percent of 40-year-olds will have an incident causing long-term disability -- defined as lasting 90 days or more -- by the time they turn 65. Disability insurance offers a safety net, but victims can easily slip through if they don't know how the system works.

Disability-income insurance comes in three basic categories: employer-provided insurance, private individual policies and government-sponsored programs, such as Social Security disability. Still, at the state level, only California, Hawaii, New Jersey, New York Rhode Island and Puerto Rico offer their own disability insurance programs.

Disability insurance primer
  • Employer-sponsored disability insurance
  • Individual private disability insurance
  • Social Security disability insurance
  • Easing back into the work force

Employer-sponsored disability insurance

First, find out what kind of disability insurance your employer offers. Most states require at least some disability coverage in the form of sick leave, and about half of all large and midsized employers also provide long-term coverage, the insurance institute says.

As of 2003, there were about 235,000 employers who provided group disability insurance to 35.5 million people, institute economist Steve Weisbart says.

Group policies for long-term coverage will usually replace at least half of your salary, up to a set maximum amount, according to the Federal Citizen Information Center, or FCIC, a division of the U.S. General Services Administration. Typically, these benefits will last until you reach 65 or your retirement age under Social Security, or until you are able to go back to work. Some policies extend benefits for a short time after you start working again.

One of the limitations of employer-sponsored disability insurance arises when workers try to appeal a claim denial, says Eric Buchanan of the law firm Eric Buchanan & Associates PLLC in Chattanooga, Tenn. Employee benefits, including disability insurance, fall under the Employee and Retiree Income and Security Act of 1974, or ERISA.


"Under ERISA, you cannot sue if you're denied your disability benefits for anything more than the amount of the benefits, plus maybe attorney's fees," Buchanan says.

With no additional penalties when their denial is reversed, employee disability insurance providers have little financial incentive to approve your claim, Buchanan says.

Show Bankrate's community sharing policy

Connect with us