How Disability Insurance Compares to Workers Compensation Insurance

Workers compensation insurance programs are somewhat comparable to employer disability insurance plans. There are also some significant differences of which you should be aware.

• Workers compensation insurance is business-related coverage that is mandated by and explained in state regulations. Unlike classic employer disability insurance coverage, the employer is not really offering a package of coverage based on their wishes and financial ability. Employers must provide coverage as specified by state regulations.
• Unlike private disability insurance plans, which often provide benefits whenever you suffer a covered illness or injury, workers compensation insurance provides coverage for physical disabilities that occur when you are working only. This coverage is a bit more restrictive in its definition of disability.
• Rates may often be directly affected by the disability statistics of your own company as well as the disability risks of your industry and state mandates.

Workers compensation insurance is a valuable component of an employee’s health insurance package. However, as a required benefit, workers compensation does not provide the level of choices offered by individual disability insurance protection. Employer disability insurance is also a valuable benefit, but similar to workers compensation coverage, it is created with the “group” in mind, not the individual. If you are a medical or other professional, you should consider purchasing individual disability insurance and adding one or more of the available custom features to increase your protection.

Refer to your insurance policy contract for specific information regarding your coverage and for actual terms, conditions and exclusions. The above statements are general in nature and may or may not reflect the actual terms of your insurance policy.

How the Circumstances or Causes of Disability Might Affect Disability Insurance Benefits

The statistics of disability often influence the cost of coverage of disability insurance. However, the causes of disability can also affect disability insurance benefits. It is important that you are aware of these in your current or future disability income insurance contracts.

Almost all disability insurance contracts have one or more “exclusions” that stipulate under which circumstances disability income benefits will NOT be paid. These stipulations outline circumstances and/or causes of disability that are “excluded” from coverage. Here are some of the most common exclusions found in many disability income insurance policies.

• Pre-existing conditions. This is a very common exclusion from many types of health insurance coverage. Many insurance companies have no desire to be responsible for medical conditions that existed before a disability policy was issued.
• Mental disorders. Because of the difficulty of diagnosis and sometimes extended recovery time needed, mental health disability coverage is often excluded or restricted in many policies. However, because of the often high stress levels faced by professionals, if this coverage can be included in an individual disability insurance policy, it is often wise to purchase it.
• HIV (Human Immunodeficiency Virus). Unlike an unavoidable illness or injury, many insurers believe (and not always correctly) that this disease is avoidable and should be excluded from coverage. Another factor favoring exclusion is the length and cost of treatment, both of which could be extensive.
• Acts of war and/or active military service. Because of the disability statistics related to military service, many insurers exclude coverage, regardless of your personal medical history.
• Pregnancy. Although sometimes covered in short term disability insurance situations, this cause of disability is often excluded from coverage.
• Disabilities encountered while on foreign travel. Many disability income insurance policies will exclude coverage while you are traveling outside of the U.S. The likelihood of disability increases for a variety of reasons and this incidence of disability motivates some insurance companies to make this an exclusion.
• Certain activities that have high disability risks. Some personal interests, like sky diving, amateur race car driving, ski racing, etc., have higher statistics of disability than other hobbies, like stamp collecting, bowling, video games, etc. Most disability insurance carriers are willing to compensate you for dropping a bowling ball on your foot if it causes a real disability, but are not as inclined if you ski off the race course into a tree.

Always read your disability insurance contract carefully to learn what causes of disability and/or activities are excluded from coverage should you suffer an injury or illness causing a disability. While the exclusions in your coverage my not please you, knowing about them early on is preferable to getting an unpleasant surprise should you become disabled in an uncovered situation.

Refer to your insurance policy contract for specific information regarding your coverage and for actual terms, conditions and exclusions. The above statements are general in nature and may or may not reflect the actual terms of your insurance policy.

Private Disability Insurance Compared to Government Insurance Protection

The debate concerning private disability insurance versus government insurance programs will probably continue. Unfortunately, the debate about which one is better is probably the wrong question. A better comparison might result if one measured how they relate to each other in providing protection. If cost were not an issue, private disability insurance would certainly be judged to be the “better” choice, since you can tailor your protection levels to your needs in an individual private disability insurance policy.

Both of these programs provide important protection that, when needed, is warmly welcomed by all. Using a combination of coverage may be the best solution to the question since these programs are often designed to perform somewhat different functions. For instance, suppose you had no private coverage at all and become injured while performing your occupation. Worker’s compensation insurance (a government program) might be a lifesaver, providing regular income benefits while you recuperate.

While Social Security Disability Insurance (SSDI) is a wonderful program, if you are a highly skilled and compensated professional, this coverage may provide a much lower benefit than you need. But it helps to understand that this program was not designed to provide the protection of a private disability insurance plan for professionals. SSDI tries to provide an income level that covers the basics (food, clothing, shelter) for millions of people. Should you have a more custom designed program, with some excellent optional features for professionals (guaranteed renewable, non-cancelable, future income increase options, own occupation coverage, etc.), your level of coverage will be superior. You may, however, have a good friend or family member who must financially live from “paycheck to paycheck.” Should he or she suffer a disability, SSDI suddenly becomes a very safe port in a very bad storm.

Therefore, the question of which protection is better may be an oxymoron. They are different but designed to help you in a similar way as part of your overall health insurance program. It’s better to understand their strengths and weaknesses and make your own decisions about the level of disability income insurance protection you need.

Refer to your insurance policy contract for specific information regarding your coverage and for actual terms, conditions and exclusions. The above statements are general in nature and may or may not reflect the actual terms of your insurance policy.

How Life and Disability Insurance Are Related

While some people may be surprised, life and disability insurance are actually closely related. Why? These two forms of insurance are both designed to protect your future earnings. The rather significant difference in their language and outward appearance often causes some confusion about their strong connection. However, this lack of understanding sometimes results in serious “gaps” in coverage.

While most professionals are aware of the need for adequate life insurance coverage to protect their families in the event of their demise, many neglect to purchase sufficient disability insurance to achieve the same important goal. This is particularly curious since the statistics of disability indicate that, particular in your younger years, you are much more likely to suffer a disability than you are to pass away. Actually, while death is a certainty at some point and injury or illness may never plague you, the likelihood of disability is strong, but the mortality statistics indicate that death typically comes at the end of your primary earnings years.

Therefore, it appears to be more important to have strong disability insurance coverage than a good life insurance policy, particularly when you are younger. In addition to being highly skilled with your hands, you are also the beneficiary of a highly trained and effective mind. Many respected experts would caution you to insure yourself against mental health disability as well as a purely physical impairment. The sometimes negative effects of stress on professionals are well documented.

The best plan would seem to be to match this relationship with life and disability insurance to create an adequate package of protection to protect you and your family against a loss of earnings while you are still young with a good medical history.

Refer to your insurance policy contract for specific information regarding your coverage and for actual terms, conditions and exclusions. The above statements are general in nature and may or may not reflect the actual terms of your insurance policy.

How Employer Disability Insurance Differs From Individual Coverage

Group or employer disability insurance coverage is a wonderful employee benefit. But if you are a highly compensated professional performing specialized duties for excellent compensation, you need to adequately protect your current and future earnings. Employer disability insurance may not accomplish that goal for a number of reasons.

Often this coverage is obtained for the entire group of individuals working at your company. Disability income statistics for the occupation variety in this group and the level of coverage desired play a large role in determining the cost of disability insurance. Since a goal of most health insurance programs is to provide equal levels of protection for all group members, if you are a highly skilled professional, your risk of disability may be lower and your protection needs may be greater. Disability employment statistics and/or group policy restrictions often prohibit you from adding the additional protection you need and deserve.

Therefore, it often makes perfect sense to consider purchasing individual disability insurance coverage for yourself. This choice allows you to custom design the levels of disability income, elimination (waiting) periods, length of benefit period, and other important features. These features might include “own occupation” disability definition, future income increases, guaranteed renewable or non-cancelable protection, waiver of premium, return of premium, and/or benefit periods up to lifetime coverage.

Having individual disability insurance coverage will come at a cost, but, compared to the potential of losing your income stream for a long period of time, this protection usually makes excellent fiscal sense. Your ability to tailor your coverage terms often permits you to have the protection you want, not coverage defined by the wishes or financial decisions of an employer.

Refer to your insurance policy contract for specific information regarding your coverage and for actual terms, conditions and exclusions. The above statements are general in nature and may or may not reflect the actual terms of your insurance policy.

How Disability Statistics Influence Insurance Premiums

Did you know that of the hundreds of thousands of families that file for bankruptcy protection every year, one in four state “disability” as the reason for their financial crisis? This is but one reason that disability statistics influence insurance premiums. Most working members of our population, blue collar, white collar, or professional, depend on their regular monthly income to maintain their lifestyle and household. Should that income cease, sometimes even for only a short period of time, entire financial structures can change for the worse.

Income and disability are therefore closely related to disability insurance premiums. If you question why disability insurance at first appears to be costly versus the cost of life insurance, consider this. Life and disability insurance are related since pay-outs for both occur because of health issues of one type or another. However, life insurance involves a stated amount, known by your insurer at the time the policy is issued. On the other hand, disability insurance involves an amount of monthly income to be paid over an often indeterminate time period, often for many years, sometimes for life.

The incidence of disability and the disability statistics specific to various occupations are therefore a major factor in the computation of insurance premiums. You should not be surprised that the cost for similar private disability insurance coverage for a professional athlete or Formula 1 race car driver is normally higher than for a business executive or orthodontist.

The Disability Statistics Center at the University of California in San Francisco and the Center for Disease Control are but two of the well respected entities that disseminate this data. Disability insurance companies use this and other third party data, compare it to their own prevalence of disability statistics to properly price their premiums. The end result: You will get the insurance protection you need at a fair cost based on the statistics for your profession and the benefit options you select.

Refer to your insurance policy contract for specific information regarding your coverage and for actual terms, conditions and exclusions. The above statements are general in nature and may or may not reflect the actual terms of your insurance policy.