Disability insurance

Disability insurance, often called disability income insurance, is a form of insurance that insures the beneficiary's earned income against the risk that disability will make working (and therefore earning) impossible. In other words, it answers the question, "How would I pay for my living expenses if I became unable to work?"

Types of disability insurance

National social insurance programs

In most developed countries, the single most important form of disability insurance is that provided by the national government for all citizens. For example, the UK's version is part of the National Insurance; the U.S.'s version is Social Security (SS)—specifically, several parts of SS including Social Security Disability Insurance (SSDI) and Supplemental Security Income (SSI). These programs provide a floor beneath all the other piecemeal forms of disability insurance in our societies. In other words, they are the safety net that catches everyone who was either (a) otherwise uninsured or (b) otherwise underinsured. As such, they are very large, very important programs, with many beneficiaries. The general theory of the benefit formula is that the benefit is not large but is enough to prevent abject poverty.

Employer-supplied disability insurance

Since one of the top reasons for becoming disabled is getting hurt on the job, it is not surprising that the second-most important form of disability insurance is that provided by employers to cover their employees. There are several subtypes that may or may not be separate parts of the benefits package: workers' compensation and more general (but very basic) disability insurance policies.

Workers' compensation

Workers' compensation (also known by variations of that name, e.g., workman's comp, workmen's comp, worker's comp, compo) offers payments to employees who are (usually temporarily, rarely permanently) unable to work because of a job-related injury. However, workers' compensation is in fact more than just income insurance, because it may pay compensation for economic loss (past and future), reimbursement or payment of medical and like expenses (functioning in this case as a form of health insurance), general damages for pain and suffering, and benefits payable to the dependents of workers killed during employment (functioning in this case as a form of life insurance).

Other

These policies offer payments to employees who are (usually temporarily, rarely permanently) unable to work because of any injury or illness, even if it is not job-related. Unlike workers' compensation, this coverage may not involve any aspect of health insurance, life insurance, or payments for pain and suffering. Similarly to most employer-supplied health insurance, these plans are essentially just open-market plans with the advantage of a negotiated group rate. That is, they are similar to what an individual would buy, but they are purchased with a volume discount. Another general fact about them is that they tend to offer rather basic, low-end coverage, essentially because most people balk at paying for anything more. Sometimes each employee has the option to buy upgraded coverage if they are willing to pay for it.