Paycheck Protection Through Disability Income Insurance

May 21, 2020

[Life Insurance 101 Series: This series features IMPACT posts that detail the breadth of the industry’s reach and benefits provided to consumers.] 

May is Disability Insurance Awareness Month. It’s a reminder even in typical economic times that we should all think about the “what if” of having a temporary or permanent illness or injury that would prevent working for a period of time. COVID-19 has put emphasis on those considerations.

Already, more than one in four of today’s 20-year-olds can expect to be out of work for more than a year with a disabling condition before they reach traditional retirement age.

Disability income insurance is paycheck protection for workers. It replaces a portion of earnings (commonly 60 percent of pre-disability earnings) if an insured employee is unable to work due to accident or illness. Coverage can be either via a group policy, usually provided by one’s employer, or via an individual disability policy. 

For group disability income insurance, short-term disability policies typically pay weekly benefits up to 13 or 26 weeks (known as the benefit period) for illnesses or injuries that keep one out of work for a shorter time period. Long-term disability policy benefit periods could be two years, five years, or to traditional retirement age.

Individual disability income policies are sold to the self-employed, professionals, and to a market of diverse needs. Some people prefer individual coverage because it is portable. Workers whose employers provide only basic coverage may buy additional disability insurance through an individual policy. Most people buy individual disability income insurance to protect against long-term disability.

During the COVID-19 pandemic, the value of short-term disability income insurance has been reaffirmed. The economic disruption highlights both the importance of protecting the incomes of workers, including those in the gig economy, and keeping group insurance coverage in place for temporarily displaced workers. Time will tell if the lingering effects of the illness trigger long-term disabilities. 

During Disability Insurance Awareness Month, there is no better time for every working individual to become aware of how to protect their income. And one proven way is through disability income insurance.

Steve Clayburn

Steve Clayburn, FSA, MAA, is Senior Actuary, Health Insurance & Reinsurance at the American Council of Life Insurers (ACLI). Steve staffs the Disability Income Committee working with member company representatives on legislative, regulatory, and actuarial issues at the state and federal level. He also co-staffs the Reinsurance Committee. He joined ACLI in 2006.