Work Comp Disability

Disability benefits provide monetary payments to employees who suffer injuries or illnesses at work or due to work-related causes.

Written by Tom Senkus
Written by Tom Senkus

As a writer and research for over two decades, Tom Senkus shares his expertise on such topics as financial planning, insurance, telecommunications, and more. His work has been featured in over 150 publications.

Workers Compensation - Disability

If you or a loved one has experienced an injury or illness at work, workers' compensation insurance is a safety net that helps offset the financial burdens for those unable to work. However, for employees who suffer permanent and lasting effects from these work-related injuries, workers' compensation pays permanent disability benefits. For those who qualify for disability benefits, workers' comp covers a wide range of benefits to compensate injured workers. 

In this article, you will learn various aspects of disability benefits regarding workers’ compensation claims, including:

Bear in mind that the rules for workers compensation insurance and permanent disability benefits vary widely by state and according to the extent of one’s injury. While this article is educational in nature, there’s no substitute for speaking with a financial professional. That’s where independent insurance agents are able to answer your questions about coverage, policy limitation, insurance alternatives, and more.

What is Disability Insurance?

Disability insurance is part of workers' compensation insurance that pays a portion of an injured worker's earnings if he cannot perform job duties due to a work-related illness or injury. Unlike workers' compensation insurance, employees pay an insurance premium toward disability insurance through an employer-sponsored benefit plan. 

Also, some states sponsor their own programs to aid injured workers, including California, Hawaii, New Jersey, New York, Rhode Island, as well as Puerto Rico. Rules for each state vary, so it’s important to speak with your state workers’ compensation agency or a workers’ compensation lawyer to learn the specifics of your state’s law. 

What Do Disability Insurance Benefits Cover?

Disability benefits provide monetary payments to employees who suffer injuries or illnesses at work or due to work-related causes. Disability benefits typically pay a portion of wages until the worker can return to work or for the future medical care and lost wages that an individual experiences after injury or illness. The extent to which an employee is compensated for their injuries depends on the extent and classification of the injuries.

Limitations to Disability Insurance

In most cases, neither disability nor workers' compensation pays for intentional or self-inflicted injuries.

Workers who take time off for injury, illness, or otherwise do not receive their full salary. Generally, a worker is paid ⅔ of their salary while they recover, though in some cases, disability insurance benefits pay less than 50% of a worker's salary.

Claims Reporting for Disability Insurance

Workers who have a workers' compensation claim must report the injury to their employer as soon as possible. Employees are then required to complete a claim form and employers must offer an immediate workers' compensation claim. 

For the employer, it is their responsibility to arrange medical assistance through workers' compensation insurance. Similar to regular workers' comp claims, disability claims are initiated through the employer, but the insurance provider pays benefits toward the claim.

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How Much Does It Cost for Employers?

A common question that is asked about disability benefits insurance is: Is it in a standard work comp policy or do you have to add it on?

First, disability insurance is part of a comprehensive workers' compensation policy. Employees have the option to elect this benefit or opt out. However, some states mandate that employees have coverage and that employers offer it to their workers. 

The average cost for employees is 1% to 3% of their annual income. Employees can also add riders to their policy for other types of disability coverage, such as long-term care and income guarantees to cover cost-of-living expenses. For these coverages, premiums tend to increase. 

The average cost of workers' compensation insurance is usually tallied as a portion of an employer’s payroll, where employers pay anywhere from $.50 to $2.30 per $100 of payroll. For a smaller company that has a $100,000 annual payroll, insurance premiums can be $500 to $2,300 per year.

Furthermore, the type of industry that is being insured plays a part in the overall cost to insure employees with workers’ comp. More hazardous industries typically require higher premiums for employers, which may be partially or entirely passed on to employees. Additionally, some industries may find it more difficult to find insurers to cover them at all. In this case, employers should seek out industry specific-insurers that specialize in underwriting these circumstances.

Are Disability Insurance Benefits State-Specific?

As mentioned previously, how much you’ll receive in disability insurance benefits varies by the state where you are employed. Every state has different workers’ comp rules regarding disability benefits. This comes down to how a disability is classified and whether a worker is eligible for benefits under certain criteria. 

What are the Eligibility Requirements for Permanent Disability Benefits?

To begin, eligibility for permanent disability benefits is determined by a workers' compensation doctor. During treatment, your treating doctor will determine whether an employee’s  condition will improve or have permanent effects on employment.

Most states determine eligibility when an individual reaches "maximum medical improvement," or MMI. Once reaching MMI, doctors will perform an examination to determine whether that injuries have left a worker with any permanent restrictions or limitations.

As an example, suppose that you have suffered nerve damage in your arms after performing repetitive tasks at work over the course of many years. Even after undergoing surgery and physical therapy, you still experience pain and ongoing symptoms that prohibit your ability to perform your job. In this case your doctor will assign you a disability rating as a percentage. This percentage represents the degree of permanent limitation you’ll have in your arms.

Depending on the nature of the injuries and your state’s laws, a doctor might designate the injured worker with a “whole person impairment rating” instead. This is a common procedure when injuries involves the head, neck, back, organs, or internal systems. For example, a coal miner who is significantly limited in their respiratory function due to Coal Workers' Pneumoconiosis (CWP), or black lung disease,  might receive a 50% whole person impairment depending on the extent of their injuries.

How Are Permanent Disability Benefits Calculated?

Permanent disability benefits are often the most complicated workers’ comp benefits to calculate. The reason for this is that each state uses its own method for determining the amount of benefits, classifying disability as either a) partial or total, and by whether the disability is scheduled or unscheduled. 

Permanent total disability A permanent and total disability is categorized as one that prevents the employee from working in any kind of gainful employment ever again.  This category of disability is reserved for only the most serious and debilitating conditions, including the loss of both arms or legs or blindness.  Permanent total disability benefits are usually paid at the same rate as temporary total disability benefits for the rest of the worker’s life.

Permanent partial disability All other permanent disabilities that aren’t categorized as a permanent total disability are considered partial disabilities.

While permanent total disabilities are easy to categorize, permanent partial disabilities are classified as either scheduled or unscheduled losses.

Scheduled Loss

A scheduled loss is a type of disability that appears on a list in the state’s workers’ compensation laws. State schedules typically involve disabilities of the extremities, including ears, eyes, legs, arms, feet, hands, toes, and fingers.  Each body part is assigned a number of weeks’ payment or a dollar amount. For most states, the number of weeks is then multiplied by the worker’s disability rating.

As an example, suppose the state schedule assigns 80 weeks of benefits for the loss of a toe. If your doctor gave you a 20% disability rating of the toe, you would receive benefits for 16 weeks.

Some states provide a temporary disability benefit rate during this time, while other states use different calculations or use a lower cap to determine how much a recipient will receive in disability benefits.

Moreover, workers with multiple scheduled losses can receive separate awards for each depending on the state. Other states treat multiple disabilities as an unscheduled loss and calculate compensation as a whole person impairment.

Unscheduled Loss and Whole Person Impairment

In contrast to a scheduled loss, an unscheduled loss is one that doesn’t appear on your particular state’s list and usually involves more complicated calculations. In these cases, some states compensate these disabilities by using a whole person impairment-based approach.

This is best illustrated with an example: 100% whole person impairment might be worth 500 weeks of disability insurance. If you have received 50% whole person impairment rating for a shoulder injury, you would only receive 250 weeks of insurance compensation.

Other states take different approaches for unscheduled losses. These states instead measure the worker’s actual wage loss due to impairment by comparing the difference between what the worker made before the injury and afterwards. Other states measure the worker’s loss of future earning capacity in relation to several factors, including the workers’ age, education, and training.

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