Disability insurance protects workers against the loss of earnings due to temporary or permanent disability. The insurance policy defines the terms of disability, policy tenure, coverage limit and exclusions.
Types of Disability Insurance
In most developed countries, disability insurance comes in various forms:
National insurance program: The most important form of disability insurance is the one offered by the government. This program covers all the citizens who are otherwise uninsured or underinsured. The UK version of this program is called National Insurance and in the US, it is termed as Social Security. Although this program does not offer huge benefits, it pays enough to debar poverty.
Employer disability insurance: Many renowned companies cover their employees against the possible hazards of disability. Employees face a high probability of meeting with an accident at the work place. So, it is essential for companies to offer disability insurance.
Worker’s compensation: It pays workers disabled by job-related injuries. This program also covers medical expenses and pays benefits to the family members of workers who died while performing job-related tasks.
Individual disability insurance policy: This policy is meant for the self-employed, temporary employees or those who are not covered under employer disability insurance. An individual can buy such an insurance policy from any insurance company. However, premiums tend to remain high for policies that provide great benefits or that define disability in a broader context.
Individual Disability Insurance Policy
An individual disability insurance policy can be further divided in two types:
Short-term disability insurance: This policy extends to not more than two years with a waiting period of zero to fourteen days.
Long-term disability insurance: Based on the premium amount, this policy can extend from a few years to your entire life. However, it has a long waiting period which can last several months.
An individual disability insurance policy has two types of protection features. With a non-cancelable policy, one can renew insurance every year at the same premium and coverage benefits. The insurance company has no right to deny renewal or cancel insurance except for the nonpayment of premium. However, in a guaranteed renewable policy, the insurance company holds the right to increase your premium with rising cost.
Making a claim for disability insurance benefits is not easy. It requires proper documentation regarding how disability occurred and how it prevents the employee from working.