Thursday, April 5, 2012

Disability Insurance Vs. Workers' Compensation

I have often been asked by business owners:  

Instead of getting a disability policy, can't I just add myself onto my workers' compensation policy?

While it is possible to add yourself onto a workers' compensation policy, the benefits are not the same as a disability policy.

Was this paper cut work related?  
Here are some of the similarities:
  • Both may pay medical bills if you are hurt
  • Both may pay disability and lost wages
  • Both may pay a portion of your lost income
  • Both will cost you based on your current income

Here are some differences:
  • Workers' Compensation only pays for on-the-job injuries
  • Workers' Compensation will only pay at most 2/3 of your stated income
  • Workers' Compensation may only pay based on your stated payroll (even if you take a draw or have other forms of compensation)
  • Workers' Compensation is based on the rate for your specific class code and you pay per $100 of payroll.  Disability is based on many factors.
When does it make sense to add yourself to your workers' compensation?
  • If you can't qualify or afford disability insurance
  • If you are in a 'low risk' field such as computer programming and the rate per $100 is relatively affordable.  
  • As an additional protection in case you get hurt on-the-job
  • If you have an abnormally high deductible for your health insurance
  • If you are prone to accidents
If you are truly worried about losing your income from getting hurt then nothing will suffice for a good disability policy.  Many people buy life insurance and feel like they have taken care of their family, but if have a bad accident and you don't die then your family can't collect.  

Don't forget that not all disability policies are created equal either.  Make sure to read the small print because in some policies you may not be able to collect if you are able to do any other job.  If you are a doctor, you aren't going to like it if the company stops paying because you can get a job as a barrista.  

Please note:
When employers make workers' compensation claims against themselves, it's a red flag for claims adjusters.  This is because it is easier for an employer to exaggerate a claim than an employee, so be ready to defend any over the top expenses for your medical treatment.  

Disclaimer:
This answer is not a substitute for professional legal advice. This answer does not create an insurance agent-client relationship, nor is it a solicitation to offer legal/insurance advice. If you ignore this warning and convey confidential information in a private message or comment, there is no duty to keep that information confidential or forego representation adverse to your interests. Seek the advice of a licensed insurance agent in the appropriate jurisdiction before taking any action that may affect your rights.