Disability Insurance Articles

Differences Between Disability Insurance And Workers Compensation

2010-10-07

It is not surprising that most people tend to believe that disability insurance and workers compensation are basically the same thing. Although they are similar in that both address the difficulties created as a result loss of income or inability to work due to an injury, there are significant differences.

Fundamentally, workers compensation insurance is a "no fault" claim. This means that in exchange for an employee's waiver of the legal right to file a suit against an employer, the employee's medical expenses are paid by the employer's insurance company until the situation is resolved and the employee returns to work. No charges accrue to the injured party. The federal government requires all employers to carry some form of workers compensation insurance. Most programs are purchased from private carriers by the employer. There are secondary state-level funds designed to cover employees whose employers do not have proper coverage to ensure that all workers have access to the protection. This insurance is part of the employer's cost of doing business. Failure to provide mandated coverage can result in substantial penalties being levied against the employer.

As a rule there is a timeframe for reporting on-the-job injuries leading to workers compensation claims. All injuries must be reported to the governing state bodies as soon as possible after the incident. Typically, these policies are required to pay only two-thirds of the employee's gross pay lost as a result of the event. In most cases, if no work time is lost and the medical expenses are low, the employer will opt to pay out of pocket to prevent a possible premium increase.

Disability insurance is different in several ways. It is entirely at the discretion of the employee. There are no laws regarding the acquisition or availability of private disability insurance. It is a policy carried by the employee at his sole expense, though often offered as an option by the employer. Usually, the premiums are deducted from each paycheck. Disability coverage can be short term, long term or both. In case of injury or illness that renders the policy holder incapable of earning an income, whether work-related or not, the policy will pay a percentage of the earner's gross income. The higher the percentage is, the higher the premiums will be. Disability insurance will usually pay other monetary compensation as well, depending on how the coverage is structured. An injury should be reported to the insurance company as soon as possible.

Fundamentally, workers compensation is mandatory coverage that addresses on the job injuries. It is paid for by the employer. Disability insurance is voluntary coverage, paid by the insured, and it does not need to be job-related.