What is temporary disability insurance?

Temporary disability insurance is a policy that provides for accidents and injuries taking place outside the workplace . Most policies will cover the costs of medical care and payments to cover a portion of lost wages. Temporary disability insurance often pays out up to 80% of lost wages, but for a short period of time. For workers’ compensation claims, the coverage usually amounts to two-thirds of regular pay, but it is available for a longer period of time.

Only five states require small business owners to provide temporary disability insurance, but all small businesses are required to carry workers’ compensation insurance. This covers you and your staff for accidents that happen in the workplace . These are not affected by the availability of temporary disability insurance.

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A process for using temporary disability insurance

Temporary disability insurance will pay a percentage of wages once an employee has used up all their sick leave, and there are different ways of offering this coverage to staff members:

Choose how to offer cover

Many companies provide temporary disability insurance as part of their employee benefits package. Some employers operate a self-funded and self-administered program whereby they fund the program themselves. Others work with an insurance company to provide an externally administered plan.

Assess the disability

The definition of a qualifying disability will vary from plan to plan, so the list of conditions covered needs to be made available to staff. In general, the plan will cover any illness or injury that renders an employee unable to perform their duties. This can depend on the type of job as well as the nature of the illness. Plans typically cover things such as childbirth, a surgery that requires a period of recovery, the after-effects of an injury that occurs during an accident or a chronic condition that requires frequent treatment.

Review the timescales

It is important to ascertain how long an employee would have to be unable to work before they start benefiting from a temporary disability policy, known as the ‘elimination period’. You can also set a period of time for which the plan will continue to pay out before a staff member is considered to be unable to work long-term.

If employers do not offer temporary disability insurance, employees can choose to purchase their own private insurance plan to cover them in case they are unable to work. They will need to consider all the same factors and may opt for more comprehensive insurance even if there is a plan offered through their employer .

Best practices for disability insurance

While some people are more at risk of losing their ability to work, it can happen to anyone. Here are some guidelines about temporary disability insurance which are recommended as best practice:

• Temporary disability insurance is recommended for anyone who relies on their job for their income as it allows them to protect their income against unexpected illness or injury.
• Employers in New York, California, Hawaii, New Jersey and Rhode Island are required to provide short-term disability benefits to their staff. Others offer employer -funded plans and some have voluntary plans that you can opt into and pay for yourself, usually benefiting from a discounted group rate.
• Your policy may also distinguish between part- and full-time work with some offering partial payments to those who are able to work part-timeand others only paying out if you cannot work at all.
• Details of the plan should be clearly available to employees to help them assess their level of cover and ascertain whether they want to supplement it with a policy of their own.

While the government’s Social Security program does not provide any short term disability insurance, federal law makes provision for unpaid short-term leave. This can be offered through the workers’ compensation program or under the Family and Medical Leave Act.

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Temporary disability FAQs

If you want to know more about temporary disability insurance, these questions may help you to understand it better:

Are mental health conditions covered by temporary disability plans?

When an employee is suffering from a debilitating mental health condition, such as depression or anxiety, it can render them unable to fulfill the responsibilities of their job. Mental health conditions are covered by most temporary disability plans, but employees will usually need a specialist diagnosis before they can make a claim. If your team member can speak to a mental health professional before taking leave from work, they can establish a history of their condition for the purposes of a claim.

How much time off does a temporary disability plan cover?

As with most variables, the details of your company’s specific coverage will be detailed in your plan. The time period covered by a temporary disability policy usually ranges from 30 days to a full year. The time for which the plan will pay out will also depend on the nature of your employee’s illness or injury and the expected recovery periods involved. There should be guidelines set out to help employers and employees to work out a reasonable length of time to be off on a case-by-case basis.

What if your coverage runs out before you are able to return to work?

If your employee exceeds the limits of a temporary disability insurance policy and is still unable to return to work, then they may need to move onto a long-term disability plan if they are covered by one. This may involve another process of assessment and a review of whether they are unable to perform some or all parts of their job.

Insurance can make generous provisions for illness and injuries, so you need to balance what you are prepared to pay versus the level of cover required.