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What does disability insurance cover?

Disability insurance covers everything from total to partial disability to disability so severe that the insurance company presumes that you won’t recover from it.

Disability insurance is like insurance for your paycheck. If you become disabled and can no longer work at your job, your disability insurance company will pay you benefits that roughly match up to your take-home pay.

In order to qualify for disability benefits, you need to meet your disability insurance policy’s definition of disability. Disability insurance covers several degrees of disability and the way your benefits are paid depends on your specific categorization of disability.

Disability insurance covers everything from total disability to the short period after you recover from your disability as well as partial disability and disability so severe that the disability insurance company presumes that you won’t ever recover from it.

Your disability insurance policy could also cover costs associated with your rehabilitation as well as a small survivor benefit paid to a loved one similar to life insurance. Your disability insurance policy may even pay you a small sum if you have lost part of your income due to caring for someone else who is disabled.

The following categories are examples of conditions that your disability insurance policy may cover. Read on to learn more about what they mean.

Total disability

When you think of disability insurance, you’re probably thinking of coverage for total disability. Total disability coverage means that when you’re so injured or ill that you can’t work and lose your income, you’ll receive disability benefits each month until you recover or your coverage expires.

The benefit amount is what you agreed to when you first took out the policy, and it should reflect your coverage needs, like the bills you have to pay while you’re out of an income.

Total disability means being unable to continue working at your job, but make sure your policy is an own-occupation policy (also known as a regular-occupation policy). An own-occupation policy means you only have to meet the insurance company’s definition of disability – that you can no longer work – for the job you had most recently at the time of your disability. The alternative, an any-occupation policy, means you have to be too disabled to do any job, which raises the bar for disability benefits eligibility too high for some people who’d otherwise qualify.

Partial disability

Some disability insurance policies cover partial disability. Unlike total disability, you do not have to show that you can’t work at all, but you do have to show that your disability has resulted in a specific kind of loss. That means a loss of income, a loss of duties, or a loss of time. If your disability insurance covers partial disability, you’ll have to show that a doctor is treating you until you can no longer benefit from medical care.

Your disability coverage for partial disability may only last for a number of months at the full benefit amount. After that time, you may be covered under the policy’s extended partial disability provisions, which links the amount of your monthly benefits to your income.

Extended partial disability

If you do not have a total disability, but you’re receiving benefits under the policy’s partial disability coverage, after the partial disability coverage ends you can still receive benefits at a reduced rate. This is called extended partial disability coverage.

Monthly benefit amounts for total disability and partial disability are around 60%-80% of your after-tax salary. But benefits paid under extended partial disability may only be a portion of the regular monthly benefit. That’s because, like partial disability, you’re still able to work, even though you may have suffered a loss of earnings.

Check your disability insurance policy to determine what percentage of your wages or salary is covered by extended partial disability benefits. You may not be eligible for benefits if you’re able to earn 80% of your usual income.

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Takeaway

Disability insurance is meant to replace your income when you become disabled.

Presumptive disability

Presumptive disability coverage is for when you suffer an injury or sickness so debilitating that the disability insurance company presumes that you’ll never be able to return to work. Such disabilities include the permanent loss of:

  • Use of both hands, both feet, or one hand and one foot
  • Speech
  • Hearing in both ears
  • Sight in both eyes

Under most disability insurance coverage, you’ll have to wait out an elimination period of around 90 days before the disability insurance company will pay benefits, which allows time for you to recover from your disability and return to work. Because of the nature of the loss, there is no elimination period for presumptive disability.

Catastrophic disability

Catastrophic disability coverage must usually be purchased as a rider, meaning additional coverage that enhances the main terms of the policy agreement. The catastrophic disability coverage increases your monthly benefits payment by a fixed amount specified in the policy.

What constitutes catastrophic disability will be defined by the policy. Usually, it means that, due to your disability, one of the following applies to you:

  • You need constant or near-constant assistance with your daily life for physical activities.
  • You need assistance due to severe cognitive impairment.
  • You qualify for presumptive disability coverage.

Recovery

Similar partial disability benefits, recovery benefits may be paid if you recover from your disability and can go back to work but can still show a loss of income as a direct result of your injury or illness.

Disability insurance companies that offer recovery benefits may use the same formula as that which they use for extended partial disability benefits. If you earn more than the carrier’s stated threshold of pre-disability income, you may no longer be eligible for recovery benefits.

Rehabilitation

Disability insurance companies want you to be disabled no more than you want to. For that reason, your insurer may cover the costs of your rehabilitation. Such expenses include training and care expenses as well as for modifications to your home, vehicle, or workplace. The sooner you can go back to work and start earning your income again, the sooner you no longer need to rely on disability insurance benefits.

Cost of living

Your disability insurance may include coverage to help you afford increases in the cost of living. This type of coverage may also be issued as a rider, for which you may have to pay an increased premium.

With a cost-of-living rider in effect, your monthly benefits will be increased by a rate using a complex formula developed by the insurer. This rate may be tied to a market index like the Consumer Price Index.

Compassionate disability

Compassionate disability benefits are paid to you if someone you care for becomes so disabled that you have to take time off work to care for him or her. You do not have to be disabled to claim compassionate disability coverage, but you do need to show that you’re working fewer hours and have thus lost a percentage of your income. That percentage will be defined in your disability insurance policy.

Survivor benefits

Your disability insurance policy may include a provision for paying benefits to your survivors if you die while receiving disability insurance benefits. The survivor benefits are small: just a predetermined number of months in the same amount of your usual disability insurance monthly benefit.

While similar to life insurance in that someone you designate will receive a benefit when you die, the survivor benefits coverage of your disability insurance plan is no replacement for true life insurance, which is meant to completely replace your income when you’re dead. Check your disability insurance policy for information on how to name a beneficiary.

What’s not covered by disability insurance

Disability insurance will cover you if you become disabled after you take out the policy and begin paying premiums. However, if try to claim benefits from a disability resulting from one of the following situations, you may get denied. These are just possible examples. Check your policy to see what conditions may be ineligible for coverage.

  • You become disabled due to a pre-existing condition.
  • You become disabled fighting in a war.
  • You become disabled while committing a crime or participating in a riot.
  • You become disabled while incarcerated.
  • Your disability is self-inflicted and intentional.
  • Your disability developed after age 65, unless your policy provides coverage beyond that.
  • Your disability is a result of pregnancy or childbirth and you claim within the first 90 days of either.
  • You lose your ability to work because your license, certification, or permit is revoked or otherwise canceled due to a reason other than a covered injury or illness.
  • You claimed disability benefits for a condition that the disability insurance company has decided will only be covered for a set period of time, and you’ve exceeded that period. Such conditions include anxiety, depression, and other types of mental illness as well as drug addiction.

Disability insurance also does not pay the costs of medical care beyond whatever amount you use from your monthly benefit for that care. To get your medical costs covered, you’ll need health insurance.

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