Most people consider their home to be their greatest asset. However, for nearly everyone, their most valuable asset is actually their ability to work and earn a living. Studies conducted by the Social Security Administration have shown that a 20-year-old worker has a 30% chance of becoming disabled before reaching retirement age. Furthermore, working adults are more likely to become disabled than they are to die. Yet, while people often obtain some form of Life insurance, the need for Disability insurance is often overlooked.

Disability insurance provides income when the covered individual cannot work due to injury or illness. In the workplace, Disability insurance can be provided in various forms: by the employer; on a voluntary basis (with employees who elect the coverage paying the entire premium); or in a base amount with employees having the option to buy additional coverage at their own expense.

There are a variety of Disability insurance plan types available in the marketplace. The following provides an overview of typical Disability insurance product features. Remember that the specific benefits and plan provisions of the product offered will vary by insurer.

The two general types of Disability insurance are short-term and long-term. Depending on the specific policy, Short-Term Disability (STD) coverage is usually intended to begin when sick days or salary continuation end. The duration of the benefit is considered short - usually no longer than 26 weeks. Long-Term Disability (LTD) coverage is set up for disabilities of an extended duration. Benefits will not be paid under an LTD policy until the disability has continued for a specified period, usually three or six months. Depending on the policy design, benefits might continue to be paid through retirement age.

Disability benefits usually replace 60%-70% of the insured's salary, up to the limits stated by the policy. Some plans allow enrollees to select the amount of coverage from a range beginning with a monthly minimum benefit (for example, $500 per month) up to a specified maximum.

A key feature of an STD or LTD policy is how "disability" is defined. Although some policies associate disability with the insured's ability to perform the duties of his or her regular occupation, other policies look at the ability of the insured to work in any occupation. Still others label an insured as disabled when the individual, due to illness or injury, earns less than a specified percentage of pre-disability pay.

When an employee is out of work for an extended time due to illness or injury, the vacant spot can create significant cost to an employer. Annual surveys conducted by the Washington Business Group on Health and Watson Wyatt Worldwide estimate combined sick and disability costs to be in the range of 5%-6% of payroll. Besides medical and other insurance costs, the loss of an employee directly affects productivity.

To make up for the lost time, the employer is likely to incur indirect costs paying overtime and/or hiring and training temporary workers. Another sobering fact is that statistics show the longer an employee is away from work, the less likely the employee is to ever return. For this reason, it is crucial to return employees out on disability to the workplace as soon as possible.

Strong rehabilitation and return-to-work services are important features to look for in a disability product. Some plans proactively manage disabilities through early and regular contact between the disabled worker and medical provider. Other plans work with the employer, employee, and medical provider to find flexible, creative back-to-work solutions such as a reduced benefit for returning to work on a part-time basis (rather than considering the worker no longer disabled and ineligible for any benefits).

Employees are valuable. Offering them the chance to protect their earning power is a smart business decision.
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Further Reading
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