Disability Insurance, often called DI or disability income insurance, or income protection, is

a form of insurance that insures the beneficiary's earned income against the risk that
a disability creates a barrier for a worker to complete the core functions of their work. For
example, the worker may suffer from an inability to maintain composure in the case of
psychological disorders or an injury, illness or condition that causes physical impairment or
incapacity to work. It encompasses paid sick leave, short-term disability benefits (STD), and
long-term disability benefits (LTD). Statistics show that in the US a disabling accident occurs, on
average, once every second. In fact, nearly 18.5% of Americans are currently living with a
disability, and 1 out of every 4 persons in the US workforce will suffer a disabling injury before
retirement.

History

The Railway Passengers Assurance Company was founded in 1848 as the first company to
provide accident insurance.

In the late 19th century, modern disability insurance began to become available. It was originally
known as "accident insurance". The first company to offer accident insurance was the Railway
Passengers Assurance Company, formed in 1848 in England to insure against the rising number
of fatalities on the nascent railway system. It was registered as the Universal Casualty
Compensation Company to:
...grant assurances on the lives of persons travelling by railway and to grant, in cases, of
accident not having a fatal termination, compensation to the assured for injuries received
under certain conditions.
The company was able to reach an agreement with the railway companies, whereby basic
accident insurance would be sold as a package deal along with travel tickets to customers.
The company charged higher premiums for second and third class travel due to the higher
risk of injury in the roofless carriages.

Individual disability insurance

Those whose employers do not provide benefits, and self-employed individuals who desire
disability coverage, may purchase policies. Premiums and available benefits for individual
coverage vary considerably between companies, occupations, states and countries. In
general, premiums are higher for policies that provide more monthly benefits, offer benefits
for longer periods of time, and start payments of benefits more quickly following a disability
claim. Premiums also tend to be higher for policies that define disability in broader terms,
meaning the policy would pay benefits in a wider variety of circumstances thus covering
more insurances that the individual was going to purchase. Web-based disability insurance
calculators assist in determining the disability insurance needed.

High-limit disability insurance

High-limit disability insurance is designed to keep individual disability benefits at 65% of
income regardless of income level. Coverage is typically issued supplemental to standard
coverage. With high-limit disability insurance, benefits can be anywhere from an additional
$2,000 to $100,000 per month. Single policy issue and participation (individual or group long-
term disability) coverage has gone up to $30,000 with some hospitals.
Business overhead expense disability insurance
Business Overhead Expense (BOE) coverage reimburses a business for overhead expenses
should the owner experience a disability. Eligible benefits include: rent or mortgage
payments, utilities, leasing costs, laundry/maintenance, accounting/billing and collection
service fees, business insurance premiums, employee salaries, employee benefits, property
tax, and other regular monthly expenses.

National social insurance programs

In most developed countries, the single most important form of disability insurance is that
provided by the national government for all citizens. For example, the UK's version is part
of National Insurance; the U.S.'s version is Social Security (SS)—specifically, several parts
of SS including Social Security Disability Insurance (SSDI) and Supplemental Security
Income (SSI). These programs provide a floor beneath all other disability insurance. In other
words, they are the safety net that catches everyone who was otherwise (a) uninsured or (b)
underinsured. As such, they are large programs with many beneficiaries. The general theory
of the benefit formula is that the benefit is enough to prevent abject poverty.
In addition to federally funded programs, there are five states which currently offer state
funded Disability Insurance programs. These programs are designed for short term
disabilities only. The coverage amount is determined by the applicant's level of income over
the previous 12 months. The states which currently fund disability insurance programs are
California, New York, New Jersey, Rhode Island, and Hawaii.

Employer-supplied disability insurance

One of the most common reasons for disability is on-the-job injury, which explains why the
second largest form of disability insurance is that provided by employers to cover their
employees. There are several subtypes that may or may not be separate parts of the
benefits package: workers' compensation and more general disability insurance policies.
Workers' compensation
Main article: Workers' compensation
Workers' compensation (also known by variations of that name, e.g., workman's
comp, workmen's comp, worker's comp, compo) offers payments to employees who are
(usually temporarily, rarely permanently) unable to work because of a job-related injury.
However, workers' compensation is in fact more than just income insurance, because it
compensates for economic loss (past and future), reimbursement or payment of medical and
life expenses (functioning in this case as a form of health insurance), and benefits payable to
the dependents of workers killed during employment (offering a form of life insurance).
Workers compensation provides no coverage to those not working. Statistics have shown
that the majority of disabilities occur while the injured person is not working and therefore is
not covered by workers' compensation.
Newsweek magazine's cover story for March 5, 2007 discussed the problems that American
veterans of Afghanistan and Iraq wars have faced in receiving VA benefits. The article
describes one veteran who waited 17 months to start receiving payments. Another article,
in The New York Times, points out that besides long waits, there is also variation based on
the veteran's state of residence and whether he/she is a veteran of the Army, National
Guard, or Reserves. The Newsweek article says that it can be difficult for a veteran to get his
or her claim approved; Newsweek described the benefits thus:
"A veteran with a disability rating of 100 percent gets about $2,400 a month—more if he
or she has children. A 50 percent rating brings in around $700 a month. But for many
returning servicemen burdened with wounds, it is, initially at least, their sole income."
The 2007 figures cited above correspond in 2012 to $2,673 a month (more with children)
and, for the 50% rating, $797 a month for a single veteran.
 According to a sidebar in the same Newsweek article, the Americans injured in these
wars, for all the obstacles to proper care, will probably receive much better
compensation and health care than equally injured Afghan or Iraqi soldiers.

DEFINITION of 'Disability Insurance'

A program managed by the Social Security Administration that insures a
worker in case of a mishap. Disability insurance offers income protection to
individuals who become disabled for a long period of time, and as a result can
no longer work during that time period. Employees who've paid the Federal
Insurance Contributions Act (FICA) tax for a certain amount of time, are
eligible to receive the Social Security disability income insurance.

Also referred to as disability-income insurance.

Next Up
1. DISABILITY INSURANCE TRUST FUND

2. WAIVER OF PREMIUM FOR DISABILITY ...

3. ANY-OCCUPATION POLICY
4. SOCIAL SECURITY BENEFITS

5.

BREAKING DOWN 'Disability Insurance'

The Federal Insurance Contributions Act (FICA) is a United States law that
requires employees to contribute a part of their earnings to fund Medicare and
Social Security. Employees who have become disabled can receive this
income insurance for at least one year. Income insurance payments begin on
the sixth month of disability.

RELATED TERMS
1. Disability Insurance Trust Fund

An account within the Social Security Trust Fund used to pay ...

2. Waiver Of Premium For Disability ...

A provision in an insurance policy that states that the insurance ...

3. Any-Occupation Policy
 A term used in the insurance industry to refer to a specific ...

4. Social Security Benefits

The monetary benefits received by retired workers who have paid

...

5. Elderly and Disabled Credit

A non-refundable tax credit available for taxpayers who are aged ...

6. Concurrent Periods

A period of time in which more than one injury or disability ...

Read more: Disability Insurance https://www.investopedia.com/terms/d/disability-

insurance.asp#ixzz53EJclaCY
Follow us: Investopedia on Facebook