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Disability Insurance Claims and Benefits Information

Disabled World: Revised/Updated: 2019/03/01

Synopsis: DI, disability income insurance, or income protection, disability insurance is an insurance against the risk of being unable to work due to psychological disorders, injury, illness or medical condition.

Main Document

Often called DI or disability income insurance, or income protection, disability insurance 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).

Disability insurance is sold by insurance companies as a product that can replace a portion of your income if you are unable to work due to an accident or illness. According to the American Council of Life Insurers one third of all Americans between the ages 35 and 65 will become disabled for more than 90 days and one in seven workers will be disabled for more than five years.

SSDI is a U.S. government benefit that a person may be eligible for if they worked long enough and paid social security taxes. In addition there are some states that provide short term disability benefits. Most individuals obtain a disability insurance policy through their employer, association, union, or from an insurance broker. There are more than 40 insurance companies that sell either short term or long term disability insurance.

The most common types of disability insurance policies sold are:

  • Short-term disability insurance
  • Long-term disability insurance
  • Business-Overhead expense insurance
  • Business Buyout Insurance

Disability Insurance is often confused with Social Security Disability Insurance (SSDI).

Group V. Individual Disability Insurance Policy

If you purchased your short-term or long-term disability policy through your employer or received your long-term disability coverage as an employee benefit, then your disability policy is almost always subject to ERISA regulations. The Employee Retirement Income Security Act of 1974, also known as "ERISA", is a federal law that sets the minimum standards for pension plans and disability insurance plans in the private industry. The principal purpose of ERISA was "to protect... the interests of participants in employee benefit plans... by establishing standards of conduct, responsibility, and obligation for fiduciaries of employee benefit plans, and by providing for appropriate remedies ... and ready access to the Federal courts." ERISA is a very complex statute which sets forth claim handling procedures that insurance companies must follow when administering a long-term disability claim. The ERISA claims procedures statute for the handling of ERISA disability claims is 29 CFR Section 2560.503-1. Some group disability policies are exempt from ERISA if you are a government employee, church employee, or you purchased your policy through a group or association which is not your employer. Most group disability plans will provide an individual with a monthly benefit equal to 66 2/3 of the insured's pre disability occupation. The benefits will usually end at age 65 or SSDI age.

Individual disability insurance policies are purchased from an insurance broker. Individual disability policies are exempt from ERISA. Individual disability policies are sold with specific monthly benefit amounts based upon the insured's income at the time of applying for benefits. Individual disability policies can be sold with a benefit payment period from as little as 2 years to a max of lifetime. Most long term disability policies define disability as the inability to perform the duties of your occupation for 24 months, and then definition will change to the inability to perform the duties of any occupation for which you have experience, education or training. Individual disability policies are always more expensive than Group disability insurance policies as they usually offer better coverage and are not governed by ERISA. In general there are two main types of disability policies: Short-Term Disability (STD) and Long-Term Disability (LTD).

In most developed countries disability insurance is provided by the national government. For example, the UK's version is part of the 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). Government disability insurance is a safety net that catches everyone who was either (a) otherwise uninsured or (b) otherwise underinsured. As such, they are very large, very important programs, with many beneficiaries. The general theory of the benefit formula is that the benefit is not large but is enough to prevent abject poverty.

Graph reveals the percentage of American adults 18 to 64 years old who skipped or delayed medical care because of cost by disability and insurance coverage status.
Graph reveals the percentage of American adults 18 to 64 years old who skipped or delayed medical care because of cost by disability and insurance coverage status.

Social Security Disability

The US Social Security and Supplemental Security Income disability programs are the largest of several Federal programs that provide assistance to people with disabilities. Both are administered by the Social Security Administration and only individuals who have a disability and meet medical criteria may qualify for benefits under either program. Social Security Disability Insurance pays benefits to you and certain members of your family if you are "insured," meaning that you worked long enough and paid Social Security taxes. Supplemental Security Income pays benefits based on financial need.

Workers compensation:

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 may pay compensation for economic loss (past and future), reimbursement or payment of medical and like expenses (functioning in this case as a form of health insurance), general damages for pain and suffering, and benefits payable to the dependents of workers killed during employment (functioning in this case as a form of life insurance).

Veterans Benefits:

The various kinds of compensation and insurance that are provided to military veterans by organizations such as the U.S. Department of Veterans Affairs (VA) are very much analogous to workers' compensation, with soldiers, sailors, and marines being the analogues of the worker. In both cases, the overall compensation system involves more than just one type of insurance, but rather encompasses health insurance, disability income insurance, life insurance, and even mortgage insurance on VA mortgages. The scope of each of these is limited. For example, the life insurance aspect is limited only to paying (rather small) survivors' benefits to survivors of veterans killed in the course of their service; it is not a general term life policy.

U.S. Federal Insurance Contributions Act (FICA):

The Federal Insurance Contributions Act (FICA) is a United States law that requires employees to contribute a part of their earnings to fund Medicare and Social Security. Employees who have become disabled can receive this income insurance for at least one year. Income insurance payments begin on the sixth month of disability.

Why You Really Need a Disability Insurance Policy

Disabilities come in all shapes and sizes. They can impact individuals and families in a variety of ways. Living with a disability can become disheartening, especially when it is combined with financial insecurity. A disability should not stop you from living your life. Social security disability insurance is one resource to help get your life back on track.

  • Each year, 1 person in 8 will suffer disability.
  • 75% of disabilities are caused by an illness rather than an accident.
  • 48 percent of VA Mortgage Foreclosures are attributed to disability.
  • Only 17 percent of small businesses offer disability insurance coverage.
  • 17 percent of American families (1 in 6) have at least 1 adult who is disabled from employment.
  • The likelihood of being disabled for more than 3 months is greater than dying in any given year.
  • In the 1st year following a paraplegia, living expenses average $259,531 per person.
  • 1/3 of all people between the ages of 30 and 64 will become disabled sometime in their lives.
  • At age 32, the chance of being disabled for 90 days is 6.5 times greater than the chance of death.
  • 82 percent of American workers have inadequate or no disability protection.
  • Workers today are 3 times more likely to suffer a long-term disability than die during their working years.
  • The average monthly Social Security Disability Income (SSDI) payment is $938, replacing on average, about 33% of current income.
  • 2 out of 3 American families live paycheck to paycheck; 70% of families can only afford to be without a paycheck for 1 month or less.
  • Disability is the leading cause of personal bankruptcies and causes nearly 50% of all mortgage foreclosures, compared to 2% by death.
  • Social Security Disability Insurance (SSDI) is available if you have worked 10 years before becoming disabled; after 5 months of disability; if the expected duration of disability is more than 1 year. It pays an average of $894.10 per month.



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