What is Disability Insurance?

To complicate things even further in describing the workplace safety net, another layer of coverage is provided by disability insurance. Only 25% of workers are covered. Companies typically provide the insurance on a voluntary basis. Sometimes it is negotiated through union contracts. It is mandatory in a handful of states.

According to the NASI report, The Environment of Disability Income Policy, the disability insurance usually covers between 50% and 67% of salary for a 26-week period. About a fourth of all private sector workers also are covered by long-term disability insurance, which takes effect if they are deemed permanently unable to work. They will collect up to 60% of their salary until reaching retirement age.

Example: Sam Shnayerson drives a forklift in a warehouse filled with computers ready for shipping. The forklift, overloaded late during a shift, topples over and crushes Shnayerson's legs. He gets workers' compensation salary payments, and his medical bills are covered during two weeks in the hospital and four weeks in a rehabilitation center. He goes home, but cannot regain the use of his legs and is in constant pain. His primary care doctor says he will never be able to return to work. A panel of specialists agrees, and Shanyerson is ruled eligible for long-term disability benefits because his employer carries the insurance policy for all workers at the warehouse. Shnayerson also applies for Social Security disability benefits, and is deemed eligible a year after his injury. He can collect both disability checks, one under the insurance policy, and one from the federal government. But his total benefit cannot be more than 80% of his salary before he was injured.