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Disability Insurance for Unemployed

Updated : March 24th, 2023

Disability Insurance

If you suffer an illness or injury that prevents you from being able to work for an extended period of time, having disability insurance coverage in place will save tremendous worry and heartache.

Disability insurance helps provide a financial safety net while you heal – and disability benefit policies come in various types, including some provided and paid for by your employer, plus others that you can purchase on your own.

9 Types of Disability Insurance for Unemployed Workers

  1. Short Term Disability Insurance
  2. Long Term Disability Insurance
  3. Supplemental Disability Insurance
  4. Social Security Disability Insurance
  5. Supplemental Security Income
  6. Workers’ Compensation
  7. Mortgage Disability Insurance
  8. VA Disability Insurance
  9. Critical Illness Insurance
  10. COBRA Health Insurance

Definition of Disability

disability insurance

Disability is defined as any physical or mental illness or injury which stops you from performing your customary or regular work. Short term disability unemployment insurance can cover you for a few months to a few years while long term disability covers you if something lays you low for some years or everlastingly, although policies normally stop paying you money once you reach retirement age.

It’s a better idea to be familiar with these disability programs before you need them, so you may take benefit right away. For example, disability benefits might begin on the date you file your claim, not on the date your disability started. Besides, there might be a waiting period before disability benefits begin, from the date you file your claim.

Being unable to work because of sickness or injury can come with a heavy financial burden for you and your family. That’s why it’s important to make sure you have a disability insurance policy in place – and if that coverage isn’t possible, it’s essential to understand the various types of disability benefits you could qualify for after becoming disabled.

The federal government estimates that approximately one in four current 20-year-olds will become disabled before reaching the recommended retirement age of 67. In addition, the Insurance Information Institute forecasts that up to 43% of workers currently age 40 or older will experience at least one disabling event that lasts for a minimum of 90 days by age 65. So it’s important to know what you can do to protect yourself and your family from such an unexpected financial blow.

Let’s take a deeper dive into some of the types of disability insurance coverage that can help unemployed workers.

1. Short Term Disability Insurance

Short term disability insurance policies will pay you up to 60% of your pre-tax salary, but as the name suggests, the policy only pays out for a limited time. Most short term disability insurance policies pay benefits for up to one year. This is a key reason that short-term disability policies aren’t recommended as stand-alone options.

Keep in mind that the average disability lasts around three years. Instead, these temporary disability insurance policies are ideal for supplementing long term disability coverage since you don’t typically have to wait as long for a short term policy’s benefits to kick in. In fact, with some short-term disability insurance policies, you can begin receiving benefits payments within just a few days. These benefits can stand in the gap until a long term disability policy takes effect.

Short term disability policies often are offered by employers. In some states, employers are required to make short term disability insurance available to eligible employees.

Eligibility for Short-Term Disability Insurance

Disability insurance benefits can be paid only after you meet all of the following requirements:

  • You should be incapable to do your regular work for at least eight consecutive days.
  • You must be employed or keenly looking for work at the time you become disabled.
  • You must have lost wages because of your disability or, if jobless, have been enthusiastically looking for work.
  • You must have earned at least $300 from which SDI deductions were withheld during a previous period.
  • You must be under the treatment and care of a licensed doctor or recognized religious practitioner during the first eight days of your disability. You must remain under care and treatment to carry on receiving benefits.
  • You must complete and mail a claim form within 49 days of the date you became disabled or you may lose benefits.

How to File a Temporary Disability Claim?

No one desires to think about filing a disability claim, but sometimes there is need for them. Expectantly, it is only for a temporary disability and not a permanent one. You will be thankful for disability insurance if it does happen, because you will in any case have some money coming in while you can’t work.

  1. Obtain a disability form. This can be acquired from the Department of Labor in your state. You can print the form from their website.
  2. Fill out your part of the form. Some of the detail you will need to provide should be collaborated with your doctor, as he has the records. You may need to submit the dates you were hospitalized and/or all treatment you have received from the doctor of record as well as any experts you have seen for your medical condition.
  3. Have your doctor fill in his part of the form. This will be the diagnosis part of the form and should be filled in by a practicing physician. He must give a specific diagnosis or the claim may be left without.
  4. Acquire other supporting documentation to go with the form. In case you were hospitalized or if you were treated by a specialist you must include this detail since it will be helpful in supporting your unemployment claim for disability.
  5. Have your employer fill out their portion of the form. The employer must do this so that the disability department knows how much to pay you. Do not wait for your salary; it will only be a portion of it. Disability has a cap on the sum they pay.
  6. Send the filled in disability form to the Department of Labor Temporary Disability Department (TDI). You will then need to wait. If there is a difficulty with the form they will send it back to you with precise guidelines on what is still required. Hopefully it won’t be too long before you collect a check.

The main term in a disability policy comprise the payment to be made in the event of disability. Unlike other policies give a lump amount upon a qualifying event; most disability policies pay a recurring sum on a usual basis, normally monthly. The amount to be paid, and for how long, are variables in a disability policy. For instance, you may decide a policy that pays $3000 per year for up to 5 years. In any case, you cannot buy disability insurance for a sum more than your present salary. There are riders obtainable that add to the payout amount every year to stay even with when inflation and wage increases.

2. Long Term Disability Insurance

Long term disability insurance is typically the most cost-effective since it offers the most comprehensive coverage. This type of policy will pay you long term disability benefits of up to 60% of your pre-tax salary, for a benefit period that could last up to five or 10 years, or even until your retirement.

Long term disability policies generally come in two types: those that cover you if you’re unable to work within the parameters of your current occupation (own-occupation), and those that pay out only if you’re unable to work within the parameters of any occupation (any-occupation).

The latter LTD coverage is typically much less expensive, but it’s also extremely difficult to prove that you need it. Some own-occupation LTD insurance policies, though more expensive, may even pay you if you find other work you can do that falls outside of the type of work you did when you became disabled.

When it comes to own-occupation long-term disability policies, they can be broken down further into specific categories. For example, a true own-occupation policy will pay you if you’re ill or injured to the point where you cannot perform your current work – even if you start doing a different type of work, your policy still will pay you.

On the other hand, transitional own-occupation policies pay you if you are unable, because of your disability, to return to your original occupation, but you can start doing work that pays a lower salary. Your transitional own-occupation policy will cover the difference between your old and new rates.

An “own-occupation not engaged” (also known as “Own-Occupation, Not Working”) policy will pay you if your disability keeps you from doing any kind of work. Once you resume employment of any kind, your policy will stop paying out benefits. Not all disabilities will prevent a person from working, but the disability may affect the nature of the work – several resources can help you with how to get a job if you have a disability.

3. Supplemental Disability Insurance

Supplemental disability insurance basically fills the gap between what your employer-sponsored disability insurance policy pays as a portion of your pre-tax income and the amount of money you need each month to cover your expenses. Most employer-sponsored disability insurance plans will pay only a portion of your pre-tax income. If the proportion of your income provided by your policy is not enough to pay for all your monthly expenses, it would be wise to check into purchasing a supplemental disability insurance policy on your own.

To figure out whether you need supplemental disability insurance, you should calculate what the payout will be from your disability policy, based on your pre-tax income. Then document and add up all your monthly expenses. The gap between the two will let you know what your payout should be from a supplemental policy.

Like most insurance policies, the price for your supplemental coverage will depend largely on factors like your age, health, gender, location, and occupation, along with the amount of coverage you need.

4. Social Security Disability Insurance

Social Security Disability Insurance is a federal assistance program designed to help compensate American workers who are unable to continue at their jobs because of illness or injury. In general, medical conditions that qualify for Social Security disability benefits are expected to last for at least a year and/or are considered terminal.

Keep in mind that SSDI is difficult to qualify for – in fact, as many as 60% of SSDI claims are denied upon first review. While you may eventually be awarded benefits through the appeals process, that process can be lengthy.

Another key point about SSDI disability benefits is that your ability to qualify is directly related to the number of work credits you’ve earned throughout your working life. In other words, you must have paid a certain amount of Social Security taxes while you were an employee to be eligible for SSDI benefits.

Many SSDI payouts hover around $1200, so if you have a higher level of income, it’s unlikely you can cover your regular expenses with only an SSDI benefit.

5. Supplemental Security Income

Another federal program that may be helpful is the Supplemental Security Income program, designed to make sure low-income Americans who are disabled get financial assistance.

The program provides benefits to both adults and children. It’s important to remember that this program is geared toward a specific demographic – adults and children with blindness or other disabilities who have limited income and resources, plus Americans age 65 or older who have income and resources that fall below a federally defined level. If this does not define your situation, you may be better off looking into a private disability insurance policy.

SSI and SSDI benefits often are confused – they are both administered by the Social Security Administration, but while SSDI benefits are funded by the Social Security taxes paid by employees during their working years, SSI benefits are paid for out of general tax revenues.

This is a key difference that allows SSI benefits to be awarded without the requirement of the claimant having earned credits through paying taxes on earnings.

6. Workers’ Compensation Insurance

Workers’ compensation insurance is actually a policy that an employer purchases, rather than the employee. And while many people assume that workers’ compensation is synonymous with disability insurance, this simply isn’t the case.

Workers’ compensation insurance is designed to protect your employer in the case that you become injured while working and the employer is liable for your medical expenses. Yes, workers’ compensation will pay you a direct monthly benefit, but only if you were injured while on the job. An important consideration about workers’ compensation insurance also is that each state provides individual guidelines for its program.

7. Mortgage Disability Insurance

Mortgage disability insurance is designed specifically to cover your mortgage payments if you become disabled and are unable to work. You may also hear this type of disability coverage called mortgage payment protection insurance.

Mortgage disability insurance typically isn’t offered by employers, so you’ll need to purchase a policy from your mortgage lender, broker, or a standard insurance company. This type of disability insurance is usually fairly easy to qualify for since it doesn’t require the same level of rigorous medical testing that is common for most long term disability policies.

Mortgage disability insurance is a feasible option if you can’t qualify for long term disability insurance, but you want to make sure you won’t default on your mortgage if you become ill or injured. Keep in mind that mortgage disability insurance benefits can’t be used for anything other than covering mortgage expenses, and the payments never come to you. Instead, they go directly to your mortgage lender. If you can qualify for long term disability coverage, that’s a more comprehensive option that you can use with more flexibility.

The cost of a mortgage disability insurance policy depends on several factors – including how much you owe on your home, your age, your occupation, and your overall health. And if you become ill or injured, your mortgage benefits usually will kick in after 30 to 60 days and will pay a predetermined amount toward your mortgage each month. This amount will be specified within the policy you choose.

8. VA Disability Insurance

Disability insurance benefits provided by the U.S. Department of Veterans Affairs are designed specifically for U.S. veterans who have a documented service-connected injury, illness, or other medical condition.

To be approved for VA disability benefits, you must show documentation of a medical condition that renders you unable to work – and your documentation must clearly establish that your current disability is a direct result of your military service. Your disability must have been caused by or exacerbated by your experience on active duty.

Disabilities are rated by the VA according to their severity, ranging from 0% to 100% disabled. Your disability rating then determines the monthly benefit amount you can receive.

9. Critical Illness Insurance

Also known as catastrophic illness insurance, this type of policy pays you a lump sum when you are diagnosed with a serious illness. Strokes, heart attacks, and cancer are typical major medical issues that could be covered by a critical illness insurance policy.

Even if you already have conventional health insurance, the tremendous costs associated with treating a major medical condition often surpass what most policies can accommodate. The premiums for critical illness insurance policies are typically reasonable, but keep in mind that this type of policy may cover only a specific set of medical conditions. Make sure you read your policy carefully and fully understand when it can be used.

10. COBRA Health Insurance

COBRA Health Insurance

Consolidated Omnibus Budget Reconciliation Act (COBRA) insurance may be an alternative for health care coverage if you have been laid off.

COBRA contains provisions giving definite former employees, spouses, retirees and dependent children the right to temporary continuation of health coverage at group rates.

While the term “group rate” makes it sound like you will be receiving a discount that will make the insurance premiums reasonable, they are normally much pricier than people expect. When you were working, you likely paid a small fraction of your actual health insurance premium. You may have paid 10% while your employer paid 90%. Under Cobra, you have to shell out 100% of the premium. Sometimes you even have to pay an extra 2% administrative charge. The total premium can be difficult to pay.

What Happens When COBRA Ends?

COBRA coverage is limited, generally to 18 months for terminating employees, and 36 months for dependents losing eligibility. But what can a person do when COBRA ends?

For someone who is totally disabled, federal law offers an extension that will continue COBRA until the start of Medicare. For those who are completely disabled, but have a medical condition that would put them off from buying individual health insurance, there is another federal law, HIPAA (Health Insurance Portability and Accountability Act) that permits such persons to procure coverage.

Types of Disability Insurance

Preparing for an unexpected disability can feel overwhelming. With so many options, levels, and price points, it can be hard to choose your best option.

With the information presented here, combined with your knowledge of your own health, your pre-tax earnings, and your monthly expenses, you can calculate the option that makes the most sense for you and your family.

If you’ve already experienced a disabling event, knowing your options for disability benefits can help you make an informed choice about the programs for which you’re most likely to qualify.

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