Studies done by the Social Security Administration (SSA) suggest that 20-year-old workers have a 3 in 10 chance of becoming disabled before they reach retirement age. A majority will recover and return to full employment. But some don't and any sound financial plan should help ensure that those who never return to full employment will still have enough income to support themselves and their families.
If you became disabled there are several programs from which that you could benefit including – individual and group disability income insurance, Social Security Disability Insurance benefits (SSDI) and state Workers’ Compensation plans.
Workers’ compensation claims are filed in the state in which the employee works or is based – regardless of the employer's location – and benefits are paid by insurance companies. In order to receive benefits you must have been injured on company property, on a work-related trip or delivery, or in the course of commuting to or from work or a work-related event.
In Massachusetts employees who get hurt on the job and miss work for six or more days may be entitled to reasonable and necessary medical treatment and compensation. Employees have up to four years to a file claim, and insurers have 14 calendar days (from date of that the first claim is filed) to approve or reject the claim. In Utah, employees are eligible to receive benefits as soon as they start working.
In most states, employees who do do receive benefits may find that, upon further review, the insurer might contest or stop the payments. Often, disputed cases go before judges, who make a final ruling on the claim.
Definition of Disability
The definition of "disability" varies from state to state, and refers to the inability to earn an income, rather than to a physical handicap. In Texas, a work-related injury or illness that results in an inability to earn a paycheck meets the criteria. Idaho distinguishes between permanent disability, when the ability to engage in gainful activity is reduced or absent because of a permanent impairment and no fundamental or marked change in the future can be reasonably expected, and permanent impairment, which is any anatomic or functional abnormality or loss after medical rehabilitation has been completed.
Most states use an impairment rating, which determines the extent permanent physical damage done by the work-related injury or illness in question and directly impacts the dollar amount of the payout. Some injuries, such as falls or burns, are easy to identify and document. Others, including occupational illnesses or diseases caused by exposure to toxins – or repetitive stress injuries – are more difficult to document. Psychological problems, which are often covered if they're work related, can be the hardest to prove. As a rule, disabilities must be documented by a professional (most often, a physician), but, in some cases, employees will also have to hire attorneys to argue their case if the disability claim is denied.
Benefits can take the form of monetary compensation, along with necessary and reasonable medical treatments, prescriptions and hospital services. At first, injured employees are classified as temporarily, partially or totally disabled. Later on, the claim may be changed to reflect permanent disability.
Rules and benefits also vary from state to state. In Massachusetts, all employers are required to carry workers' compensation insurance that covers their employees regardless of the number of hours worked in any given week. This includes owners, if they are employed by the company. Exceptions include domestic-service employees who work fewer than 16 hours per week; police, firefighters and other municipal employees who have state benefits; civilian employees who work for the federal government; certain salespersons; and corporate officers. Nevada requires all employers with one or more employee to provide coverage. However, some casual workers (those who work fewer than 20 days and earn less than $500), temporary workers who have coverage in another state and those involved with intrastate commerce not subject to Nevada laws) are excluded.
Payouts and Taxes
In Kansas, insurers pay injured workers two-thirds of their gross average weekly wage with a minimum weekly benefit of $25 and a maximum of $610. The lifetime maximum benefit is $155,000 for a permanent disability, $130,000 for a temporary or partial disability, $300,000 for a death and no limit on medical or hospital expenses.
Not all states have lifetime maximums. Amounts received for personal injuries or sickness while an employee is out of work are not taxable. But if an employee returns to work and or is assigned "light duties" some portion of workers’ compensation benefits may become taxable.
Integration with SSDI and other plans
It’s possible to collect both workers' compensation and SSDI. However, there is a cap that limits the combined benefits to 80% of the employee's prior earnings. Workers’ compensation payments may also be reduced if the employee begins receiving unemployment insurance payments.
Employer provided long-term disability plans usually integrate any benefit with SSDI and workers' compensation. In such cases, the group disability benefit may be reduced, dollar-for-dollar, by any other benefits received. Insurers tend to encourage people to return to work at the earliest opportunity and review eligibility regularly.
Individual long-term disability insurance contracts vary by company and benefits may not be subject to reductions when employees receive SSDI and/or workers' compensation. Usually, plans covering blue-collar and high-risk occupations integrate the disability benefit with SSDI and workers' compensation.
Both SSDI and workers' compensation have strict eligibility requirements; initially, many claims are denied. Employees who plan to file for either should assume that it could take many months before actual payouts are made. When calculating the amount they would like to receive, workers should consider several factors, including:
- Having group and /or individual disability coverage that would provide a benefit while waiting for a workers compensation or SSDI claim to be approved
- Their ability to reduce their living expenses
- Whether or not they've accumulated savings or other cash reserves
- The size and earnings potential of their household
- The availability of other income streams (from rental properties, investments, etc.)
The Bottom Line
No one wants to becomes disabled. But workers should understand the implications of becoming injured, or permanently disabled, and take steps to protect their family’s financial security.