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Disability Insurance: How It Works

Often called "income replacement insurance", disability coverage can provide a crucial safety net if a primary earner is unable to perform some or all of their job requirements.

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Who should choose disability insurance?

Someone suffering from a disability and unable to work may have a lot of unanswered questions, like; How am I going to pay my bills? When will I return to work and resume my income stream? Disability insurance can help quell those nagging (but very important) questions about one's finances and future.

Short- or long-term disability insurance can help individuals and families recover from a loss of income due to sickness, injury or pregnancy. This protection can be extremely helpful for many types of people, including:

  • Women who anticipate childbirth soon
  • Individuals and families who live paycheck to paycheck
  • Employees who may not have enough savings for the near future – or those who have no savings at all
  • Anyone who is trying to protect their savings

Many Americans can use financial help

Inflation, the rising cost of health care, and high deductibles have led many to incur debt or forgo treatment altogether. Employees shouldn't have to carry the extra burden of financial strain while recovering from a disability.

According to recent reports, many Americans are susceptible to experiencing such economic strife if faced with a health care challenge.

  • At least 51 million working adults in the United States lack disability insurance other than the basic coverage available through Social Security.1
  • Only 40% of U.S. households have enough in liquid savings to cover at least three months of their recurring expenses, and only 28% can cover six months.2
  • Three out of 10 American adults indicate that they can't pay an unexpected $400 bill without having to carry a balance on their credit card or borrow money from friends, family, or a bank.3

Disability insurance benefits

When electing disability coverage, employees are able to choose their monthly benefit amount. This lends individuals and families the flexibility to select coverage that suits their monthly financial needs and budget. Monthly disability benefits may be as low as $400 and up to 60-70% of the insured's monthly income. Many states have varying laws that mandate disability amounts, but benefits are generally comparable across the nation.

Disability coverage may include the following base benefits:

  • Total Disability Benefit – pays the maximum monthly benefit amount for total disability.
  • Partial Disability Benefit – pays 50% of the maximum monthly benefit amount for partial disability.
  • Recurrent Disability – when an employee has a recurrence of a previous disability, they will not have to satisfy a new elimination period (see 'Disability Benefit Payment' below).

Disability benefit payments can be restricted by:

  • Elimination Period – disabled persons must wait through an elimination period before receiving benefits
  • Concurrent Disability – when a covered person is disabled due to more than one cause, benefits are paid for one disability

Disability benefit payment & elimination period

Before approved disability payments can begin, the covered person must satisfy an elimination period. A standard elimination period is seven days but can stretch as long as 180 days. Generally, if an employee satisfies a longer elimination period, they may claim benefits longer than those with a shorter elimination period.

For example: Jane strains her back while moving furniture on a Sunday afternoon (August 1). She is unable to go into work the next day, so her husband takes her to the hospital for an MRI. Several days later, Jane's doctor diagnoses her with a herniation in her lower spine. The doctor sets up an epidural injection to manage her pain and to clear the herniation. He also certifies Jane's temporary disability, stating that she will be out of work for three to four weeks and that her injury occurred on August 1.

Jane's employer approves her temporary disability claim. She is now eligible for short-term disability benefits retroactive to August 9, as that is the first day following her policy's seven-day elimination period.

For a policy with an elimination period of seven days, the typical benefit period is three months. An elimination period of 30 days will have an extended benefit period – typically six months. Employers may choose to offer multiple elimination periods, giving enrolling employees options that best fits their needs.

Additional disability insurance benefits

Allstate Benefits offers Group Short Term Disability Insurance that can help employees protect their finances when a disability occurs. Contact a sales representative to learn more about Group Disability Insurance and other coverage options from Allstate Benefits.

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