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Disability Insurance | What Is It and How Does It Work? [Ultimate 2022 Guide]

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Eric Berkman- Licensed Life & Health Insurance AgentRead Time: 7 minutes

Disability Insurance | What is it and how does it work? [Ultimate 2021 guide]


Disability insurance is a financial security instrument that replaces a certain amount of your income every month if you suffer any injury or illness and are unable to work for a certain period of time. 

The main benefit of disability insurance is it provides financial security to you and your dependents so you don’t have to worry about losing your paycheck. 

A general outlook on disability insurance


On average, in the U.S., disabling accidents occur once every three seconds. Disability insurance benefits you in so many ways. You can pay your mortgage, rent, utility bills , groceries or even your childcare costs, among many other things you would ordinarily use your paycheck to pay for.

Disability Insurance History


In his testimony before the House Ways and Means Committee in March 1949, Arthur Altmeyer proposed a Federal disability insurance program that paid both temporary and permanent benefits. Planners in the Social Security Administration had begun the consideration of the policy in 1936 to suppress the anxiety among people. The Law was first officially established in 1956. At first, this policy was introduced for disabled workers aged 50-65 and for the children of retired or deceased workers less than 18 years of age.  Later this law had been proposed with amendments at different timelines. In 2006 federal disability insurance was paid to eight million disabled/injured people and their dependents.

The Social Security System’s role


An organization that is widely known for providing workers with disability benefits is the Social Security System. In fact, the SSS has certain programs dedicated to assisting disabled workers.

As long as you and your family are insured, and pay your Social Security taxes, you will be eligible for the benefits that are provided by the Social Security System. At present day, nearly 8.8 million workers that have disabilities are receiving Disability Insurance. As is the case with most public and private organizations, the number of benefits that are provided by The Social Security System to a disabled worker depend solely on the amount of money that he or she earns in a given time period.

Disability Insurance provided by The Social Security System is funded by tax payments made by employers and workers.  

One of the biggest issues with this type of disability insurance is it typically only pays a small amount of money and in many case will not replace an amount of one’s income to cover their monthly expenses.  Simply put, it can help put a small dent, but mostly likely won’t be nearly enough to cover you. 



Disability is a risk every working person has to face. Having disability insurance is a means to receive income if you are unable to earn a living due to injury, illness, or some other disability. 

It provides people with peace of mind, to maintain their way of life in the as much as possible in the event of a several and long lasting illness or injury.  If you were in an accident or can’t work due to any illness, you could receive benefits up to 70% of your salary through this policy.

Disability insurance might sound good to you if you rely only on your monthly income to support your dependents/family or you depend on your income to maintain your lifestyle or you cannot afford to be out of work for weeks.

What is disability insurance?


As the name implies, you can benefit from the disability insurance if you become disabled and unable to work but the insurance providers will take responsibility for your income. Disability insurance helps you to live a normal life and pay for your major expenses. 

Protection against loss of income to a disability


43% of individuals over the age of 40 experience some sort of disability that prevents them from participating in the overall labor force. For such long term disability cases, disability insurance will work as a financial benefit and can help you regain your lost income, allowing you and your family to continue functioning comfortably in society. 

Disability insurance protects the income that is to be earned by an individual and allows someone to rest and rehabilitate until his/her injury no longer prevents them from working again. Disability insurance replaces income as a bridge between long-term disability benefits and employment for individuals. 

Typically, most disability insurance programs and policies protect the lost income of workers for the first 6 months. However, this period may vary from place to place.

Available through public and private programs


Disability insurance programs are offered by both private institutions (private insurance carriers), as the U.S. Federal Government. However, there are a few key factors that set apart the insurance programs offered by the public and the private sector.

Public disability insurance programs have a set of rules and guidelines abiding by each individual state’s policy so don’t forget that when applying for disability insurance. For instance, the waiting period for applying for a disability program and the percentage of your income that is payable according to the state’s disability insurance programs. 

Private disability insurance programs, on the other hand, are usually provided by commercial (private)  insurers to an individual and are paid for by an individual directly.  Private commercial insurers offer different types of plans, and some individuals might even be obligated to take a health test and be charged for these insurance plans based on the overall health condition. 

Private institutions reimburse you for partial disability cases, and usually have a time constraint regarding how long their disability insurance program lasts. 

The variables affecting the cost of disability insurance


Certain factors are to be considered when it comes to determining the cost of an individual’s disability insurance.

  • Type of disability

In this variable, the type of disability affecting an individual and their ability to work is segmented into two parts: Own Occupation, and Any Occupation. 

Under ‘Own Occupation’, an individual has a disability that prevents him from carrying out his job responsibilities, disability insurance will allow him to receive benefits for his type of occupation. For instance, a mechanic who is unable to bend and fix cars will be compensated for his job. For the initial 2 years of disability, most employers or individual disability insurance programs label it under ‘Own Occupation’.

However, under ‘Any Occupation’, the rules are much stricter. In these circumstances, the individual will be disabled in such a manner that prevents him from seeking out any other alternative work that he can do instead of his regular job.

  • Period for Benefits 

This is the amount of time during which an individual receives benefit payments for his or her disability. A longer period for benefits results in a higher cost. Usually, in the case of a long term disability insurance, the benefits will be provided to an individual up to the age of 65. With short term disability insurance plans, workers will typically receive payments for the first 2 years of their disability.

  • Other Income Benefits

An individual may also be eligible to receive other benefits of insurance from various other sources while they are disabled, enabling them to have some income to help pay expenses while they’re unable to work. In such cases, the amount to be received through the disability insurance plan might be offset by these other benefits.

How does disability insurance work?


An agreement is made between policyholders and insurance companies, wherein an individual will be making monthly payments to be received as a income benefit when he goes out of work or is unable to work because of his disability. Each disability insurance policy clearly states the amount that is to be paid in premium by an individual, the amount that is to be received by the individual as a form of a benefit, and the period for when these benefits will be received.

The role of policy holder in disability insurance


It is crucial to understand your role as a policy holder. Let’s learn more about your responsibilities and privileges. 



  • Provide complete and accurate information
  • Do not make a false declaration
  • Submit all required documents 
  • Never sign a proposal without reviewing it carefully
  • Select the right policy according to your needs
  • Choose electronic payment to stay updated and safe
  • Write Nominee’s name carefully
  • Don’t forget to mention your contact details and insurer in the proposal to avoid any inconvenience and stay updated about claim details, registration etc…



  • The policy holder is free to choose the right product from the insurance company according to your requirements without getting under the influence of any insurance provider
  • Before making a final decision, do comprehensive research, check all the insurance companies, and make a comparison between their prices
  • You are free to pay the insurance fee before the expiry date of the grace period
  • The insurance company is bound to act according to the terms and conditions written in agreement so don’t be afraid to refuse anything that is against the insurance policy agreement.

Lost income due to a disability


It is the legal right of every individual to get benefits if he is unable to go to work due to his unfortunate partial disability. One can file a claim for State Disability Insurance, wherein he will be provided with benefits equal to a certain percentage of his income (usually 60 or 70% of an individual’s income) for a certain amount of time (a few months to 2 years, depending on the Disability Insurance policies of that state that you reside in.)

Private disability insurance


Employed people who are unable to work due to a disability may be covered by private disability insurance for employers, which pays all or parts of their salary if they’re employer offers them this benefit as part of their overall benefits package.  Some employers provide private disability insurance as compensation. Individuals can also purchase private disability insurance coverage from insurance firms on their own, which typically offers more benefits coverage and for longer durations.


Who does a disability insurance plan cover?


Insurance companies offer different insurance plans, some of them cover partial disabilities and some cover full disabilities. Plans can cover almost everything including rehabilitation and your recovery period. 

Disability insurance covers different types of illnesses including mental, physical and injuries caused by accidents. Some insurance companies cover non illnesses such as childbirth complications and pregnancy. 

There are two types of disability insurance:

  • Long term Disability 
  • Short term disability


The eligibility criteria of short term disability and long term disability insurance depend upon the insurance company policy.

Short term Disability Insurance

This type of insurance policy typically covers 60% of the policy holder’s normal income for a short period of 3 months to 12 months. Short term disability insurance can provide a lot of income protection for someone suffering from a temporary injury. 

Long term Disability Insurance

Long term disability insurance also typically covers 60% of a policy holder’s income but for a longer period up to 65 years of age. This is the reason short term disability insurance policies are comparatively expensive. 

The Council for Disability Awareness stated that disabilities caused by accidents or illness and the following are the major causes of long term disability.

  • Joint, back and muscle disorders
  • Disorders related to the nervous system and spine
  • Circulatory and heart diseases
  • Dreadful diseases including tumors and cancer
  • Serious injuries and accidents

Where can I find out more and get advice if I want to get disability insurance?


It is crucial to do some research before making a big decision of purchasing disability insurance. You can find multiple disability insurance consultants on the internet. However, choosing the right advisor is another difficult task. 

Policy solver has knowledgeable, licensed agents, and is here to help you navigate through your disability insurance journey.  We are a team of professional insurance policy brokers and we can save you time and money, while finding the right policy for your specific needs.

Our experienced advisors will ask you a few questions to understand your unique situation and will come up with a comprehensive analysis of different insurance plans so they will be able to recommend the best policy at the best price for you.

So, what are you looking for? Call us or fill out a contact form, and we will get back to you soon!

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