The Difference Between Workers Comp and Disability Insurance

In the world of employers and employees, workers’ comp and disability are two terms that can, at first glance, seem like they refer to the same thing. And while the core principle of both insurance types—providing financial coverage to employees who suffer from illness or injury—is similar, they are in fact, two distinct types of insurance.

In this article, we’ll cover the similarities and differences between workers’ comp and disability insurance. After that we’ll provide an overview of the claims process. Finally, we’ll tackle some other common questions, like the difference between short and long-term disability and whether or not you can collect workers’ comp and disability at the same time.

Similarities between workers’ comp and disability

Both workers’ comp insurance and short-term disability insurance provide financial compensation to employees who are unable to work due to injury or illness. They both typically provide a fraction of an employee’s base salary for the duration of the coverage period.

Neither insurance type will provide coverage or accept a claim from an employee that inflicts an injury or illness upon his or herself.

Differences between workers’ comp and disability

The first thing that separates workers’ comp and disability is the degree to which they’re required by law. In nearly every state, any business that has employees is required to carry workers’ comp insurance. Short-term disability insurance, however, is optional in all but a few states.

Workers’ comp provides coverage for illness and injury sustained at the workplace or while performing work-related tasks in accordance with company policy. It does not provide coverage for illnesses or injuries to employees that occur outside the workplace. It is also provided by an employer at no cost to employees.

Short-term disability insurance provides coverage for expenses related to illnesses and injuries that do not necessarily occur at the workplace. In most cases, short-term disability is to cover non-workplace injuries or illnesses. Unlike workers’ comp insurance, employees often must pay monthly premiums to remain covered under disability insurance.

Claims reporting

For an injured or ill employee, the first step toward receiving insurance benefits is filing a claim.

For injuries or illnesses sustained while at work, this means reporting the incident to an employer as soon as possible. Afterward, the employer provides the employee with the necessary paperwork to file a workers’ comp claim. Employers can then either file or dispute the claim. If the claim is accepted, the employer must arrange medical care for the employee, which will be covered by the insurance provider.

Short-term vs. long-term disability

Disability insurance falls into two categories: short-term and long-term. The major difference between the two is the length of time an employee can receive benefits (known as the benefit period).

Short-term disability insurance is designed to cover employees immediately after an event that leads to an injury or illness. Most policies have a benefit period of 3 to 6 months, though some insurance providers may offer longer benefit periods in their short-term plans. Since the benefit period is short, the percentage of lost wages recovered tends to be on the higher side.

Long-term disability insurance offers much longer benefit periods with the tradeoff of a lower percentage of lost wages recovered. Long-term plans can have benefit periods of many years or decades. Premium costs tend to scale up with coverage terms, so a 5-year term would have lower premiums on average than, say, a 30-year term.

Long-term disability insurance also has a waiting period (or elimination period) before an employee can begin receiving benefits.

Can you collect workers’ comp and disability at the same time?

Collecting workers’ compensation benefits and disability at the same time is complicated by nature. In some cases, it may be possible to collect workers’ comp and disability simultaneously. It’s also possible to only receive partial disability benefits or to be denied benefits altogether.

If you’re already receiving workers’ comp benefits and you get approved for long-term disability, your insurance carrier may offset your long-term disability benefits by the amount of money you’re receiving from workers’ comp.

Some long-term disability policies don’t even cover work-related injuries or illnesses. These policies are designed with the understanding that injuries sustained in the workplace should be covered by workers’ compensation insurance.

In some scenarios, collecting both workers’ comp and short-term disability can result in you having to pay back some of your benefits. This could happen if you start collecting short-term disability before getting your workers’ comp claim approved. Since both types of insurance are paying you the same benefits for the same injury or illness, your short-term disability carrier would expect you to reimburse them.

The Bottom Line

Workers comp and disability may seem similar, but they have some key differences to keep in mind. Workers’ compensation insurance provides financial compensation to employees who get injured or become ill on the job. It’s provided by employers and is required by law in most states.

Short-term and long-term disability can cover employees who can’t work due to injuries sustained outside of the workplace. Disability insurance can be provided by employers (though it’s not required) or purchased by employees.

Knowing the difference between the two can help you make an informed decision and fill any gaps in coverage you may have.