What is Disability Insurance and its Requirements What Type of Disabilities are There?
What is Disability Insurance?
Disability Insurance is insurance given to an individual if he or she is unable to perform the core duties on their job, due to a disability, which in turn results in a loss of earnings. It is also called disability income insurance, income protection or DI. It is insurance against the loss of income caused by any disability.
According to Wikipedia, in the U.S., on average an accident takes place every second. An alarming 18.5% of Americans have disabilities. The ratio of people with disabilities is an astounding 1:3, according to the Council for Disability Awareness.
Types and Requirements
There are several insurance providers who cover this type of insurance. The specific type, eligibility, and rates differ from provider to provider. It includes short-term and long-term disability benefits and sick leave. Short-term disability insurance, as the name suggests, covers an individual who is incapacitated throughout 3 to 6 months. It generally covers part of the earner’s income. Long-term disability cover ensures an individual who is disabled for more than six months. Here also, the provider will pay part of the earner’s income.
However, a person is entitled to receive the cover, only if, he or she has been disabled for a certain period before this. For example, if a person cut off their hand, they are not entitled to be covered by insurance straight away. They have to wait for a specific amount of time before they can benefit from this type of insurance. This waiting time is referred to as an elimination period. Before the elimination period expires, if the individual recovers, they will no longer be considered as eligible to apply for the cover. There are three main factors that have a bearing on the cost of disability insurance. They are – the elimination period, the benefit period and the definition of disability.
Understanding the Types of Long Term Disability Insurance
There are divided into three broad categories:
- Non-cancellable policy – Premiums are fixed over the policy term. The provider cannot reduce benefits and raise rates. They also cannot cancel or decline to renew a cover as long as they receive timely premium payments.
- Guaranteed renewable policy – Premiums remain fixed up to the policy anniversary. They can be increased post that, only if, the increase is rolled out over the entire class of holders. The benefits cannot be reduced if they receive timely premium payments.
- Conditionally renewable policies – Premiums can be increased. The cover can be canceled if any stipulated condition is not met.
Social Security Administration (SSA)
The Social Security Administration also ensures disabilities under Social security Disability Insurance or SSDI. However, they do not cover short-term disabilities. Potential applicants, who have paid their Federal Insurance Contributions Act or FICA tax, for a stipulated period, are eligible.
To qualify for SSDI benefits, all the following have to meet:
- Should have worked in a job covered by Social Security
- Should have worked in this job for a period no less than 5 out of 10 years
- Have a medical condition that stops you from working and renders you disabled (SSA’s definition of “disabled”)
If the last criteria have not been met, the SSA will take into account the person’s age, credits they have accumulated, etc. as deciding factors for qualification. Also, specific work-hours and income stipulations have to be met. However, if an individual has not contributed to social security at all, they are usually disqualified since SSDI payments are made using taxpayers’ money.
Disability Insurance can be bought by the individual or provided by the individual's employer as part of the employee's benefits package. It can also be provided as part of a worker's compensation or through the SSA if a person qualifies. An employee does not buy both the latter. Benefits are provided as long as certain criteria are met.