Who Pays the Bills When I'm Too Hurt To Work?

Ryan Hanley headshot photo. Written by Ryan Hanley
Ryan Hanley headshot photo.
Written by Ryan Hanley

Ryan Hanley is a public speaker, podcaster and author of the Amazon best-seller, “Content Warfare.” Ryan has over 15 years of insurance expertise.

paying bills

When an illness or injury leaves someone temporarily or permanently unable to perform their job, most people immediately begin to worry about how they will pay their bills. Prior to injury or illness, you may have worked your entire life to provide for you and your loved ones. It is understandable that you would want to protect the things you have labored so hard to obtain.

Income protection insurance can ensure that your household can continue operating even after a serious illness or injury. In the U.S., income protection insurance is called disability insurance. When you become too sick or hurt to work, it can help make sure you can continue to pay the bills.

Various Types of Income Protection Insurance  

There are three basic forms of disability, or replacement income, insurance. The main difference is who pays for them -- your employer, the taxpayers, or you. Much like anything, the people who pay for it have more control over how it is used.

Employer-Paid Disability Insurance

Nearly every state in the U.S. requires employers to carry workers' compensation insurance that covers job-related illnesses and injuries. This coverage not only helps pay the medical costs of treating the illness or injury, but can also provide short-term disability payments that help replace some of the lost income due to missing work. Some states require more robust forms of employer-paid disability, and many employers choose to offer it even if it is not legally mandated.

For example, while talking to a coworker at the construction headquarters, Dave was accidentally knocked over by the office dog. The impact of the overly excited, unofficial, 75-pound mascot caused serious damage to his left knee, sending him to the hospital for treatment. The collision caused enough injury to merit physical therapy and left Dave unable to work for six months. The type of income protection insurance provided by Dave's boss paid for his hospital visit and physical therapy. It also paid Dave 65% of what he would have earned had he continued working. Some policies pay up to 75% of normal wages for short-term disability.

Social Security Disability Benefits

This can be paid to workers whose disability is expected to last at least 12 months and is so severe that no gainful employment can be performed. This is long-term disability insurance, to which all taxpayers contribute. Eligibility requires documentation from doctors, and recipients often wait months or even years before they begin to see payments. The benefits are usually half or less of what the recipient was earning while working.

According to the U.S. Department of the Treasury, annual Social Security disability payments increased from $40 billion in 1995 to more than $143 billion in 2015.

Individual Disability Insurance:

For most workers, even those with some employer-paid coverage, an individual disability policy, sometimes referred to as loss of income insurance or income replacement insurance, is the best way to ensure adequate income in the event of disability. It is especially important for self-employed or contract workers to secure income protection insurance policies. According to the Insurance Information Institute, more than 500,000 individual disability insurance policies were active in 2015 in the United States.

When you purchase a private disability insurance policy, you can expect to receive anywhere from 50% to 70% of your previous salary. However, disability benefits are not taxed, which often makes up for much of the lost income.

The Difference Between Short-Term and Long-Term Disability

The names themselves give some indication of the difference. However, you may be surprised to learn that some "short-term" disabilities can lat for a year or longer. Likewise, long-term disability does not necesssarily carry a life sentence.

  • Short-term income protection insurance provides coverage for a limited amount of time. You typically begin to receive benefits after a short waiting period of up to 14 days. You are then covered for the length of time specified in your policy, which can be from several months up to one year. Your policy will also indicate a maximum coverage amount. You will receive benefits until you exceed the policy’s specified time limit or maximum coverage amount, or until you recover. Short-term disability insurance policies pay out benefits when the recipient experiences the birth of a child, a lengthy illness or a serious injury. Dave's injury outlined above is an example of a short-term disability.

  • Long-term income protection insurance covers injuries and illnesses that prevent you from working. It provides coverage during a longer time period than short-term disability coverage. If you experience a debilitating illness, you may have a longer waiting period before receiving benefits. Long-term disability claims can take up to 90 days to process, and sometimes longer. After your claim is settled, you can receive benefits for several years, until you reach age 65, or until you recover. Some policies pay benefits for the rest of your life, although this varies by policy and by insurer.

    According to the Council for Disabilities Awareness, more than 90% of disabilities are caused by illnesses rather than accidents. In fact, the most common need for long-term disability income protection insurance claims are caused by:

    • Musculoskeletal/connective tissue disorders
    • Disorders of the nervous system and sense organs
    • Cardiovascular/circulatory disorders
    • Cancer
    • Mental disorders
      For example, Lynelle started developing severe back pain in 2009. By 2012 she had undergone several spinal surgeries. A number of powerful prescriptions were tried, and eventually a medication pump was installed near her vertebrae to control the pain. Unable to work, Lynelle began receiving long-term disability, which replaced 75% percent of her income. Although the process was long, she received back payments from when she stopped working.

Can You Afford Not to Have Income Protection Insurance?

Few people could afford to be out of work for several months or even years without the benefit of income replacement insurance or disability benefits. Relying on Social Security often means very lengthy waiting periods or outright disqualification. Your employer may have a short-term disability policy that could help you through a temporary setback. But what happens if you permanently become too sick to work?

Finding the right long-term individual disability insurance policy requires a lot of expertise. You also want to secure this important income replacement insurance before an accident or injury takes place.

Knowledgeable, experienced agents with Trusted Choice® are always available to answer any questions you may have and assist you in finding the right income protection policy for you. These independent brokers are able to locate a number of quotes from a variety of insurance companies, so you can choose a policy with the best coverage at the most affordable rates. Contact a Trusted Choice agent to find out how a disability, or income protection, insurance policy can help you keep your financial footing after a disability.

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