What Is Disability Insurance?

We live in a world where many employees are able to pick and choose where they want to work based on the benefits that an organization is offering. Since the pandemic, people’s values have changed: Health and livelihood are at the forefront of people’s priorities and as such, working for an employer that is able to provide health insurance is important to many.

Similarly, alongside health insurance, disability insurance is often a highly desired employee benefit. Above all, employees are working to earn a living and a concern is that if they are unable to work due to an injury or sickness, then they are not able to support themselves and their families. Since the pandemic, people have learned that things can change very quickly and having plans in place to cover the worst case scenario is a wise move.

Even if disability insurance is not a mandatory employee entitlement in some places, providing this to employees is likely to give them the peace of mind that if something goes wrong or they fall ill, they are protected and provided for.

What is the definition of disability insurance?

While definitions differ by country, disability insurance is for those who cannot work because they are sick or injured. Their wage, or part of their wage, will be covered by the disability insurance which can either be provided by the employer as an employee benefit, or the employee can get their own private insurance policy. 

It is worth noting that in most cases, an employee does not necessarily have to have suffered injuries whilst at work to be able to claim the disability insurance cover.

The insurance will protect against future loss of income due to a disability providing that the individual can qualify for it. One of the common conditions of being able to claim the benefit is that the disability is serious enough to stop them from being able to carry out their work effectively.

The cost of disability insurance cover will depend on a few factors such as the employee’s income, how long an individual will need to wait before they can receive the benefits, and their medical history.

Note, disability insurance is closely related to workers’ compensation. However, workers’ compensation tends to relate to injuries suffered on the job, whereas disability insurance can be a broader concept covering those suffering a disability anywhere. in some countries, the two concepts are fused, such as in New Zealand with the Accident Compensation Corporation (ACC) scheme. 

Short term vs long term

There are two types of disability insurance, short-term, and long-term. The difference between the two is the length of time that the insurance policy will last for. Short-term disability insurance typically replaces an income for a short period for temporary disabilities and long-term insurance provides longer cover for more serious illnesses or injuries.

Each plan is different and the length of time you can receive the benefit is dependent on the policy and the country. For example, in Canada, a short-term plan will usually give you benefits for up to 6 months and a long-term plan may give you benefits for up to 2 years.

Public vs private

In some countries, disability insurance is not required as a mandatory employee entitlement and many organizations will not provide it. In these cases, individuals may want to apply for their own private disability insurance to cover them if anything happens that would prevent them from working.

However, it is quite common for disability insurance, or something like it, to be paid as part of a mandatory ‘social insurance’. For example, in the UK this is part of National Insurance. In the US, this is part of  Social Security Disability Insurance (SSDI) and Supplemental Security Income (SSI). In these cases, as the social insurance creates relatively small payments, it is common for this to be ‘topped up’ with an entirely private, or employee-sponsored scheme. 

Disability insurance in Canada

In Canada, individuals can purchase disability insurance to protect against unexpected illnesses or accidents that mean they are unable to work and receive a salary. Generally, insurance can replace 60-85% of a person’s income.

In Canada, a lot of employers already offer specific employer-sponsored disability insurance, but it not compulsory. However, employees are often eligible for Employment Insurance (EI) in the case of disability, which is a form of social insurance offering some payment to those who are sick of disabled. In Canada, if the employer pays for the disability insurance it will be subject to tax. If an employer does not offer disability insurance, people can get their own through a private plan and this is tax-free if paid entirely by the individual.

Employees in Canada may also be able to find disability benefits through their pension plans to add to their income if they are not able to work. The Canada Pension Plan and Quebec Pension Plan offer a disability benefit that is open to those who have contributed and that cannot work due to a disability.

Disability insurance in USA

In the United States, employer-sponsored disability benefits are mandatory in certain states. As mentioned earlier, there are also two social security administration programs that pay disability benefits, Social Security Disability Insurance (SSDI) and Supplemental Security Insurance (SSI).

SSDI is available to those who become disabled whilst earning enough social security credits and SSI is for people with disabilities or who are over the age of 65.

In the USA, short-term disability insurance can pay a salary for up to 2 years and long-term disability policies can pay earnings for a few years or until the disability ends.

Disability insurance in Australia

In Australia, the National Disability Insurance Agency (NDIA) is an independent statutory agency that offers disability insurance and support for those with a permanent disability.

The Australian government has created the scheme to create more inclusive opportunities for everyone. NDIS provides people with disability information, funding, connections, and services that they can access as part of the scheme.

How can a global PEO help manage disability insurance contributions (and other types of contribution and insurance)?

A global PEO or professional employer organization is a company that hires employees globally on your behalf. The PEO is the legal employer, but the employee works for you and you are responsible for training them and providing them with work. In turn, the PEO is responsible for payroll, tax, making mandatory contributions, arranging mandatory benefits, and HR duties. In some PEO arrangements, the PEO can also be responsible for the health insurance.

In some countries, it may not be mandatory that employers provide health or disability insurance to their employees, however, in others it is. Even where it isn’t compulsory, employers may be expected to provide it nevertheless, as a matter of custom. 

A global PEO can help client companies manage disability insurance and other types of insurance and contributions. They do this by using the knowledge and experience of operating in different jurisdictions to understand whether mandatory or discretionary contributions need to be made, and what the market standard might be. 

Horizons manages insurance contributions internationally

For companies operating in different jurisdictions, it is important to understand which benefits are mandatory and which are discretionary. This can be tricky as the employment and labor laws vary depending on the country.

If you need support managing contributions and benefits for employees, Horizons can assist you. Please do not hesitate to contact us today for further information on how we can help.