Your Options

In the event you sustain a disabling injury or illness, there are several sources of disability benefits you might be able to tap into, including from the government and your employer.

However, there are limitations on these benefits, and they may not be sufficient to meet your income replacement needs. It makes sense, then, to consider obtaining additional coverage, either through the workplace or on your own.

Workers’ Compensation

If you’re employed and you suffer a disabling illness or injury that is work related, you might be able to count on Workers’ Compensation insurance to replace some of your salary. All states require employers to provide Workers’ Compensation coverage. It typically pays about two-thirds of your pre-disability income. However, according to the National Safety Council, 73% of long-term disabilities are a result of an injury or illness that is not work-related and therefore wouldn’t qualify for Workers’ Compensation.

State Disability Insurance Programs

A handful of states—California, Hawaii, New Jersey, New York and Rhode Island, and Puerto Rico—provide short-term disability coverage, typically for up to six months, which workers pay for through a payroll deduction. For those who live in these states, this can be an important source of short-term income replacement.

Social Security

The federal government administers a disability insurance program that covers most workers, but qualifying for benefits isn’t easy. According to the Social Security Administration, 65% of applications for Social Security disability benefits were initially denied, and the average monthly payment of current beneficiaries for 2012 was $1,130, which hovers around the poverty line.

Employer-Sponsored Coverage

The main source of disability income protection is provided or sponsored by employers. Many employers, especially larger ones, provide their employees with group insurance coverage. There are two forms: short-term disability (STD), which replaces a significant percentage of your income for about three months in most cases, and long-term disability (LTD), which typically pays 40% to 60% of your base salary (pretax) for longer periods.

Often, employees will be given the option to add to the baseline coverage that their employer provides. Some companies don’t provide disability coverage, but help their employees by giving them the opportunity to purchase coverage on a voluntary basis. With this type of program, employees, rather than the employers, pay the full cost of the coverage. A benefit of purchasing disability coverage at work is that it’s generally easier to qualify for than coverage you purchase on your own. Check with your human resources department or benefits manager to see what coverage and purchase options your company’s plan provides.

Individual Disability Insurance

The most flexible and reliable source of coverage is an individual disability insurance policy that you purchase on your own. A privately owned policy is portable, meaning you won’t have to worry about losing coverage if you change jobs. Generally, most individual plans will pay between 40% and 65% percent of your predisability gross salary. When paid with after-tax dollars, benefits are received income tax free.

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