Disability Insurance

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Disability insurance comprises income protections and policies that vary considerably from one locality to another, e.g., state or nation, despite the common intent to cushion and offset financial hardships imposed by sudden, accidental, pre-existing or otherwise emergent disabilities; temporary and/or permanent disabilities; partial/total/residual disabilities and physical and/or mental disabilities.

"DI", or "disability income insurance", as such programs are termed, may or may not be mandatory; or require substantial (if any) premiums, employer-employee cost sharing, or have age, other demographic or socio-economic eligibility criteria.

Various types can be distinguished for the purpose of general orientation. For a clear understanding of any specific DI plan, it will be necessary to examine it in terms of the considerations mentioned above and the following:

1.1 Individual disability insurance
1.2 High-limit disability insurance
1.3 Key-person disability insurance
1.4 Business overhead expense disability insurance
1.5 National social insurance programs
1.6 Employer-supplied disability insurance

Disability insurance, also called "DI" or "Disability Income Insurance" is designed to provide a source of income in the event of unexpected, accidental or emergent disability, e.g., an inability to or serious impairment of work because of a worsening of a pre-existing, previously non-disabling condition (although with many exclusions). Wide variations in the protections afforded, conditions of eligibility, scope of benefits, exclusion, tax implications, costs, period of coverage, funding and the definition of "disability" itself preclude anything but a general overview of DI in a global context.

However, whatever DI program an individual is required to participate in (where mandatory, e.g., California, Hawaii, ....) or privately chooses to enroll in, there are important considerations to take into account in order to foresee the circumstances and associated benefits that define the program and policy.

Among the important factors that determine the scope and nature of any specific DI program are these:

Insured group size: larger groups enjoy more benefits than smaller ones, with lower lower costs per member

Employer-sponsored vs. private vs. governmentally-sponsored disability insurance: Where optional, employer-sponsored, independent, governmental and private DI plans should be competitively evaluated for cost, coverage, eligibility, etc. Employer-sponsored plans will, in general, be contracted through private insurance companies, with or without governmental supplementation.

Tax implications: In some instances and jurisdictions, if an employer contributes even $1 to an employee's disability insurance plant, any benefits the latter receives automatically become taxable. Such tax implications, including deductions, should be factored into a plan selection, when there are alternatives available.

Coverage-period specifics: A DI plan should be evaluated in terms of the period(s) of coverage it provides. Specifically

- Sick leave plan
- Short term disability
- Long term disability

Covered conditions: Insurance protection may fail if the condition you think is a disability is not covered, e.g., is, under the terms of a specific policy, not "permanent"; is "self-inflicted" (alcohol dependency); is pre-existing or otherwise non-accidental; or is an unprotected psychiatric condition

Integration with government disability income insurance programs: It is important to know to what degree private and governmental DI plans are integrated, complementary, mutually exclusive, conflicting or compensatory (i.e., with one providing partial or full coverage the other does not)

Partial vs. total disability allowances: In some instances or jurisdictions, only total disability insurance benefits are provided, whereas in others, partial disabilities also qualify for benefits

Eligibility requirements: Check to determine whether disability allowances are linked to age, e.g., retirement age, rather than to employment status, e.g., retired, self-employed, unemployed

Because of wide variability around the world regarding cultures and nations as diverse as those of the United States, China and Yemen, it is imperative that the specifics of the DI plans available to you be well understood. Even within the United States, there is no uniformity regarding whether participation in DI programs is mandatory, since only a handful of states mandate compulsory employee DI.
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