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Disability insurance vs. workers’ compensation insurance

Both types of coverage provide a safety net if you can’t work, but buying your own policy puts you in control

If you can’t work because of an illness or injury, insurance can help you pay the bills and other expenses until you’re ready to work again.

Both disability insurance and workers’ compensation insurance offer protection, but with different benefits and drawbacks.

Disability insurance is designed to protect you after an illness or injury prevents you from working. Workers’ compensation helps if you are hurt or get sick at your workplace.

Disability insurance vs. workers’ compensation insurance

Disability insuranceWorkers’ compensation
Average cost1% to 3% of annual salaryPaid by employer
Coverage amount50% to 60% of monthly salaryVaries by state
Elimination period30, 60, 90, 180 or 365 days7 days in most states
Benefit period2, 5 or 10 years — or until Social Security retirement age3 to 7 years depending on state law

What is disability insurance?

If you buy your own disability insurance — sometimes called disability income insurance — your policy replaces part of your income if you get too sick or injured to continue working.

In exchange for paying premiums that range from 1% to 3% of your annual income, you can file a claim to receive 50% to 60% of your monthly salary for two, five, or 10 years depending on your policy. Some policies can pay benefits until you reach retirement age.

How does disability insurance work?

Let’s say you buy disability insurance coverage and keep up your premiums, and you’re later diagnosed with a covered disease that requires surgery and a year’s recovery.

Your health insurance will help cover the medical bills. But how will you pay other bills while you’re out of work?

Your disability insurance policy can kick in to offer a monthly benefit worth 50% to 60% of your monthly salary to help you pay your housing and living expenses while you recover.

How your policy helps depends on variables that include:

  • Your elimination period. Your policy won’t pay a disability benefit until this period expires. Shorter periods of 30 days to 60 days require higher premiums.
  • Benefit period. Some policies pay benefits for a couple of years while others pay until you reach Social Security retirement age. Longer benefit periods come with higher premiums.
  • Coverage amount. Payouts average 50% to 60% of your monthly income from work.

How does workers’ compensation insurance work?

Unlike disability insurance, which you buy for yourself, workers’ compensation is a state-mandated insurance program provided by employers.

This coverage helps you only if you’re disabled because of an at-work illness or injury. If you are injured on vacation or diagnosed with a condition that isn’t the result of your job, workers’ compensation won’t help.

What to know about workers’ compensation

If you’re relying on workers’ comp to protect your budget after an illness or injury, know that:

  • You give up your right to sue. Workers’ compensation helps you, but it also helps your employer. If you agree to receive these benefits, you give up your right to sue your employer later for more money.
  • State laws vary. Read up on your state’s workers’ comp laws to understand your benefits. You can find these laws through your state workers’ comp board.
  • You can receive medical care and lost wages. Workers’ compensation can cover your health care bills and help replace your lost wages as you recover from a work-related accident or illness.

Pros and cons of disability insurance and workers’ compensation

Disability insuranceWorkers’ compensation
Pros
  • You can take your coverage with you if you change jobs
  • Benefits available even if disability isn’t work-related
  • Premiums paid by employer
  • Shorter elimination period
Cons
  • Cheaper policies offer less coverage
  • Pre-existing conditions aren’t covered
  • May have to pass a medical exam to get coverage
  • State laws dictate coverage
  • Not all employers offer coverage
  • Getting benefits means you can’t sue your employer later

Which insurance should I get: disability or workers’ comp?

Best for
Disability insurance
  • Income protection for any covered injuries or illnesses
  • Earners with large bills or dependents
  • People who want to customize their coverage
  • People who don’t have substantial savings
Workers’ compensation
    • Workers who want protection from work-related disabilities only
    • Earners who don’t want to pay for private coverage
    • Workers who need immediate help after missing work

Can I combine disability insurance with workers’ comp?

You can buy disability insurance even if your employer provides workers’ compensation coverage. And you can file a claim on your disability policy even if you’re entitled to workers’ comp benefits.

However, if you file both a workers’ compensation claim and a claim on your disability insurance, any payments you receive from your disability policy can be reduced by the amount you’re receiving from workers’ comp. Read your disability policy’s list of limitations before buying coverage so you’ll know what to expect.

Compare disability insurance

Name Product Coverage Amount Benefit period Waiting period Own Occupation Medical exam required
Policygenius Disability Insurance
$100 to $20,000
2, 5, or 10 years or until age 65 or 67
60 - 365 days
Yes
Depends on provider
Get matched with one of 15 top life insurance companies to find the best coverage and rates for you.
JRC Life Insurance
$500 to $20,000
2 year to lifetime
30 - 365 days
Yes
Yes
Compare policies up to $10 million from 45+ top insurance companies with the click of a button.
Breeze
$500 to $20,000
1, 2, 5, or 10 years or until age 65 or 67
30 - 365 days
Yes
No
Secure long-term disability insurance online by filling out an easy 10-minute application, even if you're a high income earner.
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Compare up to 4 providers

Bottom line

Workers’ compensation insurance provides blanket protections if you’re injured or ill due to work, but buying your own long-term disability insurance policy can provide an alternative source of income if you suffer an injury or illness outside of work.

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