What is disability insurance?

Let’s say you’re in good health, and you work a steady job that requires you to drive every day. One day, on a family bike ride, you take a spill and break your leg. You’re unable to drive while you’re recovering, which makes it impossible to earn an income. Luckily, you have disability insurance through your employer.

Starting the day of your accident, you enter a waiting period, sometimes called an “elimination period”. This is the number of days you’re unable to work before you start collecting disability benefits, according to the Insurance Information Institute (III).

Once your waiting period expires, you’ll be eligible to collect the percentage of your income that’s specified in your policy until you’re either able to work again, or your policy terms expire.

A disability like this can lead to extra expenses, such as medical bills and home modifications, says the National Association of Insurance Commissioners (NAIC). Having disability insurance in place "just in case" can be a safeguard — helping to ensure you can pay for these expenses in addition to your typical bills. It may also mean you won't have to dip into saving and retirement accounts to help cover bills.

There are a few basic types of disability insurance, and each type has its own benefits and eligibility requirements.

Short-term disability insurance

Short-term disability coverage usually lasts for three to six months after an injury or illness occurs. These policies may require a waiting period of up to 14 days after your initial injury or disability occurs to start providing coverage, says the III.

Long-term disability insurance

Long-term coverage typically begins after short-term disability insurance ends, after about six months. Depending on your situation and coverage, it can last for a few years or until you reach retirement age.

Social Security Disability Insurance

You may also qualify for the Social Security Disability Insurance program if you have a condition that will keep you out of work for at least a year, provided you have worked long enough to qualify for Social Security. If eligible, you and certain family members may receive a monthly Social Security payment. However, it can be difficult to qualify, and the payments are frequently not enough to live an average lifestyle, says the NAHU.

Group disability insurance

Group disability insurance is usually a benefit offered by employers to their employees. Typically, a group disability plan won’t require a health check or physical, as is sometimes required with individual plans.

While some states require employers to provide short-term coverage, there are no laws that require long-term coverage to be provided. According to the III, around half of large and mid-sized employers have some type of long-term offering that covers about 60 percent of an employee’s wages.

Many people think they already have disability coverage through their employer, but it's important to differentiate between workers' compensation coverage and disability insurance. Worker's compensation typically covers only incidents that are work-related. Disability insurance, however, may help provide coverage for an injury or illness that is not the result of an accident or exposure related to your employment, says the NAIC. If your employer does offer disability insurance, be sure you understand what it covers and how long it will last — you may want to increase the coverage (if possible) or purchase an individual policy to help provide additional coverage.