How does disability insurance work?

Black couple laughing on the couch with the woman holding a laptop and doing research

No matter how careful you are, things happen. The Social Security Administration estimates that more than a quarter of today’s 20-year-olds will be unable to work because of a disability for a year or more before they retire. That’s what disability income insurance is for. If you’re sick or injured and can’t work, disability insurance helps replace a portion of your lost income while you get back on your feet.

If you’re still not sure whether disability insurance is worth it, keep reading to learn more about it. Disability insurance can be divided into two main types: short-term and long-term. They work in similar ways, but last for different amounts of time. Which type of disability policy you should choose depends on your situation, and you may find that having both short and long-term disability insurance makes sense.

Types of disability insurance

Short-term disability insurance

Short-term disability insurance, such as Haven Disability, protects you in the near term if you suffer a disability and need time to recover. The amount you’ll receive each month from a short-term disability insurance plan is most often based on a percentage of your salary (typically between 40-60% of your income).

Short-term disability insurance benefits can begin in as little as two weeks, and last for up to one year. Think about the hair stylist who throws out her back and can’t stand for long periods of time. Or the accountant who’s had complications from COVID-19 and is bedridden for weeks or months.

Long term disability insurance

Long-term disability benefits pick up where short-term disability benefits leave off. It’s designed to protect you in case of an illness or injury that can keep you from working for years or more. Consider the employee who works in a call center and can no longer type because of severe arthritis. Or the programmer who’s suffered a traumatic brain injury. The truck driver with impaired vision. Long-term disability insurance is sometimes offered by employers, but it is more often purchased by individuals.

What does disability insurance cover?

The exact list of covered illnesses and injuries can vary depending on the insurer and options you choose, but generally speaking, disability insurance covers illnesses and injuries that prevent you from doing the important tasks at your job. That includes contagious diseases like COVID, conditions like cancer or complications from pregnancy, and injuries like a broken bone.

With Haven Disability, a disability occurs when…

You have a condition caused by sickness or injury that prevents you from doing the important tasks, functions and operations generally required for your occupation that can’t be reasonably omitted or modifiedYou’re under a doctor’s careThe disability begins while the policy is in force

We consider your occupation to be your regular profession(s) or business(es) at the start of a disability for which you receive or can receive remuneration. (Sorry for the legalese. It’s an important term, so we have to be extra specific.)

Which injuries and illnesses aren’t covered by disability insurance?

With Haven Disability, conditions that aren’t typically covered include:

Normal pregnancy and childbirthSubstance abuseMost cosmetic surgerySelf-inflicted injuries

Exactly which conditions are covered or excluded can also vary by state. If you have a question about a specific condition or want to learn more about Haven Disability coverage, you can contact our support team by email at disupport@havenlife.com, or give us a call at 1 (855) 950-1395 weekdays from 8:30 am to 4:30 pm Eastern.

Choosing the right disability coverage options for you

When you purchase a disability insurance policy, you’ll have three main choices to make: benefit amount, benefit period, and elimination period.

Benefit amount

Your benefit payment amount, or monthly benefit, determines how much income you’ll receive per month if your disability claim is approved. Haven Disability lets you choose any amount you want, from $500 to $5,000, with a cap of 60% of your income. With employer-provided short-term disability policies, the benefit amount is almost always a percentage of your salary – usually in the neighborhood of 60%.

The higher the benefit payment amount, the more you’ll pay for disability insurance coverage, so choosing the right amount can be a balancing act. At minimum, you should consider having enough to pay your most important monthly expenses, such as your rent or mortgage, car payment, food, and utilities. That’s especially true if you’re a single parent, or don’t have a partner whose income could help cover expenses.

Benefit period

The next thing you need to determine is your benefit period, or how long you’ll receive benefits if you can’t work. The longer the benefit period, the higher the cost. For short-term disability policies, the benefit period typically ranges from three months to a year. (Haven Disability offers benefit periods of 3, 6, and 12 months.)

Long-term disability insurance is measured in years, rather than months, with benefit periods of two or five years being common. Some policies even include disability insurance coverage that extends until retirement age. Expect to pay more for that level of protection, though.

Elimination period

Now you know how much you’ll get, and for how long. The last thing to choose is how soon you’ll receive benefits. Obviously, you can’t file a claim if you’re sick for a day. The elimination period, or waiting period, determines the amount of time you’ll need to be disabled before your benefits kick in.

With short-term disability policies, the elimination period can be as short as two weeks, or as long as a few months. (Haven Disability offers a choice of 14, 30, or 60 days.) With long-term disability policies, the elimination period can range from 30 days to two years, with 90 days being a common option.

The more you have saved for a rainy day, the longer you can afford to wait for your benefits to kick in. Choosing a short elimination period will increase the cost some, but it could be worth it if you don’t have enough emergency savings to weather months without an income.

Comparing individual vs. group policies

If you receive short-term disability insurance through your employer, great. Some states, such as New York, California, and Rhode Island, even require in-state employers to offer disability insurance to the employees who live and work within state lines. It’s a nice perk. Group disability insurance policies are typically a little less expensive than individual disability insurance, and in many cases, the employer pays for it entirely. But there are some differences between employer-provided and individual disability income insurance to note.

If your disability policy is provided by your employer, the benefits you’ll receive will be subject to taxes, so you may not have quite as much coverage as you think. Individual policies are purchased with after-tax income, so the benefits won’t be taxed further. That means 60% of your salary may actually come closer to replacing your take-home pay.

If you leave the organization, the group disability insurance policy will likely end with it. You may receive coverage at your next job, but you may not. Individual policies work differently. If you purchase your disability policy directly from the carrier, you “own” that policy, and can take the coverage with you if you switch companies.

That portability is especially important if your health situation changes over time in a way that could make getting a new policy expensive, or even impossible. If your individual policy is “guaranteed renewable,” you’ll have the option to renew the coverage for a set amount of time, regardless of changes to your health. With Haven Disability, you’ll have the option to renew until age 65.

How much does disability insurance cost?

Wondering how much disability insurance costs? As a rule of thumb, disability insurance usually costs between 1-3% of your salary. How much you’ll pay for individual disability insurance depends mostly on the benefit amount, benefit period, and elimination period you choose, along with the insurer. Other factors include:

AgeGenderOccupationHealth conditions

The fastest way to find out how much a short-term policy will cost you is to get a 30-second disability insurance estimate. But if you’d rather see numbers first, our article on how much disability insurance costs will give you a good idea.

How to apply for disability insurance

Group plans offered by employers are typically guaranteed acceptance, so the application process can be as simple as opting in when enrolling for benefits. If you’re buying an individual disability income insurance policy, things are a little different, since you’ll need to go through an underwriting process. How time-consuming that process varies widely, though.

Many disability policies will require a phone interview and a trip to the doctor. Others, like Haven Disability, can be applied for entirely online in minutes, without calls, appointments, or fluids. You’ll need to answer some basic questions about your health and the activities your job requires.

How to file a disability insurance claim

If you’re sick or injured and can’t work, you can start a Haven Disability claim online anytime by logging into your account. To start the claim, you’ll need…

Personal information (like your name, date of birth, etc.) and policy numberA brief description of the diagnosis or medical condition causing your disabilityThe last date you were able to work normallyWe may also request additional information, depending on the circumstances of your claim.

Although disability benefits don’t begin to accrue until your elimination period has passed, that doesn’t mean you need to wait to file your claim. If your illness or injury will likely keep you out of work for an extended period, it’s best to file as soon as possible so we can get started processing your claim.

Things to remember

Your monthly benefit determines how much you’ll receive each month if your disability claim is approved. Benefits received through your employer will be subject to taxes, but individual coverage purchases with after-tax money won’t.Your benefit period determines how long you’ll receive benefits from each claim. With short-term disability coverage, you can typically choose a benefit period of 3, 6, or 12 months.Your elimination period determines how soon you’ll receive disability benefits if you can’t work. With short-term policies, you can typically choose an elimination period of as little as 14 days, although 30 and 60 days are also common options if you’re looking to save on health insurance premiums.