All About Disability Insurance

I’ve mentioned a couple times that my husband is receiving disability insurance while recovering from surgery. However, I was startled to discover recently that California is one of only five states with a state-run disability program. If you don’t live in one of these states (California, Rhode Island, Hawaii, New York, New Jersey), you should pursue other options for getting this insurance.

How State Disability Programs Work
In states that offer disability programs, your employer deducts your contributions through payroll deductions. Some organizations and government agencies are exempt, but may have a similar internal program. If you’re self-employed, you may be able to buy benefits through the state program.

Once you have a disability, you apply for benefits through the disability program, which is usually operated by the unemployment department. The specifics vary by state, but in general, you’re paid 55% of your previous salary per week, based on your highest-earning quarter out of the last five quarters. There is a cap, however. In California it’s $987. Disability income is not taxable, so even though you receive about half your salary, you’re not losing as much income as it seems. In California, there is a 52-week cap on benefits.

If you’re unemployed when you become disabled, you may also qualify for benefits, which will be higher than your unemployment benefits. Unemployment payments are low to encourage workers to return to work quickly. Disabled workers obviously can’t do that. You can’t receive both benefits at the same time.

How Employer-Provided Disability Programs Work
If you don’t live in a state with a government disability program, your employer may offer it privately as an employment benefit. Many employers provide it as a free benefit, but some ask employees to contribute. If your employer asks you to contribute, do it. It’s much cheaper to buy coverage through a large group plan than through an independent plan.

Unlike state plans, which are the same for everyone in your state, you should check with human resources or your insurance provider for information about eligibility, waiting periods, and filing a claim. Most plans cover up to 60% of your salary. My husband’s employer provides a state supplemental for 60% of his income. If your employer pays for the coverage as a benefit, the income may be taxable. Ask your employer.

How Private Disability Insurance Works
If your state or employer doesn’t offer disability insurance, you can acquire it privately. You’ll most likely be required to undergo medical underwriting as part of the application process. You may also be subject to a longer waiting period before benefits become available.

If you’re a high-earner, you may want to supplement your existing state or employer disability plan with a private plan. Private plans will usually cover 70-80% of your income. It can cost $600-1800 a year, so review your plan carefully to make sure you have adequate coverage and that it includes an “own occupation” rider. Without that, benefits may stop if you can return to any work. You want to be covered until you can return to your current occupation.

How to Apply for Disability Coverage
In order to apply for disability, you and your doctor must complete the form that proves your disability. Contact your state, employer, or insurance company for the proper forms and follow the instructions carefully. Be sure to notify the insurer when you return to work in order to stop the payments. Failure to do so is insurance fraud.

Worker’s Comp vs. Disability Insurance
Disability insurance is for injuries or illnesses that occur outside the workplace. If you’re injured on the job, then you should file a worker’s comp claim. All employers are required to maintain proper worker’s comp coverage. You don’t have to opt-in or pay for the benefit. Benefits and the claims process will vary depending on your state, so contact HR for advice.

State/Employer Disability vs. SSDI
If you’re disabled for more than a year, then you will most likely qualify for a Federal program known was Social Security Disabled Insurance (SSDI). SSDI is part of your FICA contributions. The benefit amount is based on your lifetime average earnings. If you expect to be disabled for more than a year, contact Social Security or speak to your doctor’s office about filing a claim.

Sources of Disability Insurance
If you live in one of the five states that requires disability insurance through the state program, then you probably already have it. If you’re employed and don’t live in one of those states, ask your employer about it.

If you’re self-employed, contact your insurance agent for information about applying. It’s vital that a self-employer person by coverage because you’ll have absolutely no income if you become injured.

If your employer doesn’t offer insurance, you have a few options. If you’re a member of a union or trade group, contact them to see if they have a group program. My husband bought a small, cheap plan through his professional organization. It has a 3-month waiting period, so we won’t be tapping it for his current injury, but at $80 a year, it’s worth it in case of future emergencies. If you don’t belong to a trade group, contact your insurance agent for information and q

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