| Disability insurance is designed to provide income to a covered employee in the event that the employee is unable to work because of illness or injury. Some states sponsor disability insurance programs; however, state programs typically provide benefits that represent only a fraction of a worker's salary. In addition, the period during which disability benefits can be received is limited, after which a disabled employee will have to rely on an employer-sponsored disability program or an individual disability insurance policy.
Employers may provide some disability insurance as a benefit, while others may offer it in conjunction with a group health insurance plan. The disability insurance policy will dictate what constitutes a disability, when benefits will begin, the amount of the benefit, and when the benefits will end. The benefit amount may be a fixed dollar amount or may be based on the disabled employee's salary. Many disability polices require an employee seeking benefits to report the disability within a certain number of days of the onset of the disability.
Disability insurance usually can be classified as one of three main types. A non-cancelable policy provides for fixed premiums for the life of the policy and fixed benefit amounts. In addition, the insurer may not cancel the policy or refuse to renew it. With a guaranteed renewable policy, the premiums may be raised, but only for an entire category of covered employees and not on an individual basis. With conditionally renewable policies, the policy provides certain specific events, generally health-related, which may cause the premiums to increase or the coverage to be cancelled.
Determining when a covered employee is disabled will depend upon the terms of the specific disability policy. A disability policy may require total, permanent disability in order to provide benefits, while others may provide benefits for temporary disability and partial disability. Because payment of benefits depends on the covered employee being disabled, disability will be explicitly defined by a disability insurance policy.
Moreover, the premiums to be paid for the policy may depend upon the definition of disability that is used. One type of disability policy may define disability as the employee's inability to perform his or her present job. Policies using this definition are commonly referred to as "own occupation" policies, and tend to be more expensive than policies that define disability more generally. Another type of disability policy defines disability as the inability to do any type of work that the insured employee is able to do given his or her work experience and education. This type of policy may be called an "any occupation" policy.
The benefits provided by disability insurance polices vary widely from policy to policy. Some are designed simply to replace lost wages while others will cover certain medical expenses and occupational therapy and rehabilitation. Some will deduct any Social Security benefits received by an employee, while others will pay the full specified amount. In general, disability policies do not cover illness or injury caused by drug or alcohol abuse or other types of self-inflicted injury or illness. Copyright 2010 LexisNexis, a division of Reed Elsevier Inc. |