What’s the Difference Between Employee Disability Insurance & Workers Compensation?

It’s a very good question and many people (including many small-scale employes) remain confused about it or don’t know the answer. However, your ignorance may speak against you and you might end up draining a good fortune if an employee gets injured in the job and you have no worker’s compensation coverage. Employee Disability Insurance: As of now, few states like CA, New York, Hawaii, New Jersey and the Commonwealth of Puerto Rico mandate that employers provide employees disability insurance. Technically and legally, disability insurance is something that an employee has the right to elect to purchase. Else, it may also be a part of an employee group insurance policy. So, technically, it arrives in two flavors. You can either purchase it as an individual or together.

1. Short-term disability policies usually cover 13 to 26 weeks (few even stretches up to 1 year). As long as the benefits are concerned, the insured gets anything from 50% - 60% of his/her gross pay on weekly basis. Before benefits start getting poured in, an employee may have to wait for 1 to 10 days unless it is an accident or immediate hospitalization is required.
2. Long-term disability policies come into the picture when short-term benefits run out. Long-term benefits usually start within 3-6 months after the disabling event and end when you reach 65 or within 5 years (whichever comes first). Benefit amount and terms are almost same as for short-term coverage. However, if any person is receiving Social Security or other benefits, the disability benefits might get reduced proportionately.

Workers Compensation Technically, workers compensation is an insurance that your employer purchases from a private insurance company to cover the cost of medical care and lost income to you in case if you come across any accident or injury while at work. However, here you should note that loss income in most circumstances is capped at ? of gross income. Again, if the total expenses are below $1,000, you may choose to pay them on your own since you might want to avoid filing a claim and risk increasing your premiums. However, before taking any step you should ensure with your agent. Under the US Dept. of Labor regulations, it is mandatory in all 50 states that if you employ one full or part time employee, you need to undertake workers compensation insurance. However, there are conditions and exemptions that vary from state to state. For instance, in Texas you may purchase a non-subscription product that’s similar to workers compensation. Depending on the type of business you operate, rules regarding the number of employee may also vary from state to state. Again, if you hire a relative of your, he/she won’t be counted as an employee. You can check with your state’s department of insurance or your insurance agent to know more about the specific law regarding employee status and workman comp insurance in your state.