Disability insurance, also known as disability income insurance, protects workers against a loss of salary if they become disabled and cannot work. The insurance will pay some or all of an individual's salary if they cannot work because of an injury, illness, physical impairment, or psychological disorder. About a quarter of workers become disabled during their career. Workers can use the insurance if they sustain a debilitating injury on the job or if they have an illness or injury unrelated to their job, such as cancer. Money from disability income insurance can be used to pay a mortgage, car payments, food, utilities, and other living expenses.
Some employers provide disability income insurance to their employees, but workers can also buy private insurance. Private disability income insurance usually covers about 70 percent of a worker's income. Workers can buy insurance through a broker by providing information about their age, job, income, and any existing health conditions. The insurance rates will vary depending on how likely an individual is to become disabled. It can be paid either as a monthly or annual premium. Disability income insurance is often expensive; many workers pay premiums of thousands of dollars per year. For some workers with risky jobs or existing health issues, the cost of the insurance is better than the risk of losing income because of a disability.
Workers can choose between two different types of disability insurance: short-term disability policies or long-term disability policies. Short-term disability policies vary depending on an individual's plan but usually last between a few months and a year. It will provide income for a worker who has a short-term disability but has run out of sick leave. Long term disability policies also vary but could cover a worker for between a year and the rest of the worker's life. Some long-term disability policies will cover a worker until they turn a specified age. Workers can choose their preferred type of insurance depending on their personal circumstances.