Disability Insurance vs. Workers Comp: What do they cover?


The US Bureau of Labor Statistics states that the number of Americans who miss work is about 12 per 1,000 fully employed workers over the past few years.  In total, this means about 1.2 million people missed an average of 8 days of work each year in 2011 and 2012.  What happens to these people when they are injured varies depending on how they are covered by their insurance.  If they work for a company with 3 or more employees, then they will be covered by a workers compensation policy if the injury or illness occurs on the job.  Any officers who have excluded themselves from their workers compensation policy or people who miss work due to an occurrence outside of their job will only be covered if they have a disability policy.  Knowing the differences in these two insurance types is essential in keeping yourself covered and not financially devastated if you become physically or mentally unable to work.

A workers compensation policy offers much more protection than a disability policy and is almost always provided by your employer.  This policy type only covers injuries that occur at your job, at business meetings, or during travel for work-related purposes.  It will also cover illnesses directly due to the work environment, such as mold spores in the office, Sick Building Syndrome, or airborne particles from processing and manufacturing; though these can be difficult to prove.  This policy is classified as a no-fault policy, meaning the employee will be covered regardless of who is at fault; with the exception of purposeful self-injury, which is excluded as fraud.

A workers compensation policy covers a set percentage, which varies by state and tax status, of your income and any medical or rehabilitation costs incurred as a direct result of your injury.  There is no limit for the medical costs are or for the duration of the  replacement pay up to the policy limits, however, if the injury lingers and prevents or inhibits work for an extended period of time, the insurance company and the injured employee may settle on a single, lump-sum payment.

Disability insurance is provided to employees of companies by about half of major US employers, though it is not required by law.  It may be purchased by a company for its employees as a benefits package or individually, with the cost of coverage falling on the worker.  Like the workers compensation policy, it covers lost wages due to injury or illness at a set percentage, but does not cover medical costs and does have payment limitations.  A disability policy applies to any time missed from work due to an injury or illness regardless of where or how the injury was sustained and is divided into two sub-groups: short-term disability and long-term disability.

The short-term disability policy will include a waiting period after an injury and a set window (usually limited to 90 or 180 days) in which payments are made; the lengths of these heavily affect the cost of the policy. These policies are ideal for issues like severe, non-chronic illnesses, broken bones that prevent you from working, or short term rehabilitation after an event like a car crash. If an injury or illness prevents work longer than the short-term policy timeframe, a long-term disability policy will be needed. A long-term policy will usually cover a smaller percentage of income, but has a much longer window of payments; the purpose of this is to provide for the employee, but not incentivize fraudulent claims. Chronic illnesses and major, long-term rehabilitation efforts would fall into this category and be covered.

We recommend that all people look into these policies, which can be very affordable, but they are especially recommended for those with a family history of heart disease, cancer, or other heritable issues which could lead to missed work. This can also be a cheaper alternative for company officers who have excluded themselves from their workers compensation policy. It is important to note that if you have both policy types in effect, the workers compensation policy will typically supersede the coverage of the disability policy since both payments cannot be given simultaneously in the event of a workplace injury. Even if you are covered under your employer’s workers compensation plan, a disability policy is recommended since it provides replacement income for events outside the workplace, such as car crashes and falls, beyond the basic home, auto, or liability policy medical payments.



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