YOU ASK:

What is the difference between workers' compensation and disability insurance?

WE ANSWER:

In a nutshell, private disability insurance and Workers' Compensation provide compensation for disability.

However, Workers' Compensation pays only for job-related disabilities while private disability insurance pays if you meet the disability criteria, which may include the fact that the disability is not incurred during the job.

Meanwhile, the disability insurance from Social Security also pays for disability, regardless of how it was caused, but Social Security also has their own definition and eligibility criteria before they will make the payments.

Now to make it easier to see the differences, let's put the characteristics of each on a table.

Social Security Disability Workers' Compensation Private Insurance
Who can be covered Anyone who is eligible. Coverage is mandated by the state. Anyone who is eligible. Coverage is mandated by the state. Coverage is optional.
When is disability payable When the claimant meets the criteria for disability. When the injury or illness that caused the disability is job-related. When the injury or illness that caused the disability is not job-related.
Who runs it Government-run. Government-run. Run by private insurance companies.
Kind of disability covered Long-term disability.
The disability should have lasted or is expected to last for 12 months.
Any job-related disability. Both short-term and long-term disability.
Payments Monthly payments of a set amount.
The monthly benefits are set every year to account for inflation.
May be a lump sum or monthly benefit payment.
May pay not just for disability compensation but also for the workers' medical bills.
Monthly payments based on a percentage of one's latest income.
May also be a specified amount.
Length of payments Benefit payments may last until retirement age, when it automatically converts into retirement benefits.
Benefits may stop if you exceed the maximum monthly income limit.
Benefits are paid depending on the length of the disability or as a lump sum payment. Benefits last until the specified number of benefit periods.
Off-sets Social Security disability payments are affected by Workers' Compensation payments but not by private disability insurance payments. Workers' Compensation payments are not offset for either Social Security or private insurance. Disability insurance will take into consideration what the insured receives in Social Security disability benefits. The payments may be reduced equal to the amount received from Social Security and other benefit payments.
Premium payments Paid as FICA taxes. Paid as FICA taxes. Paid by private funds, either from the employer or the employee.
Was this question and its answer useful?
Not a bit
  • Currently 4.4/5 Stars
  • 1
  • 2
  • 3
  • 4
  • 5
Very useful
Have a question about insurance? Ask the experts
Share: