What is Business Disability Insurance?

Employers can offer many different types of benefits to their employees. These can range from health care insurance to holiday bonuses, from wellness programs to retirement savings accounts, from vacation time to business disability insurance. When workers get hurt or seriously ill, perhaps one of the most important of those benefits is the last. Business disability insurance provides a share of workers' income when they are hurt or sick and unable to perform their job.

Business disability insurance is different than other types of insurance benefits offered by employers. Health insurance, for instance, only pays a portion of the medical and medication expenses of employees. Unlike disability insurance, health insurance does not pay disability income to help workers with other expenses, such as rent or mortgages, car payments, and monthly bills. Workers' comp insurance is designed to help pay medical bills and lost wages for workers when they get hurt on the job. Business disability insurance can pay out no matter where or how workers get injured or ill.

For most workers, their employers offer what is called short-term disability insurance. This type of business disability insurance is meant to help employees with an absence of work that can last only a few days to weeks. Different employers have different durations of short-term disability insurance. In general, short-term insurance usually does not go beyond two years and it requires a waiting period before it goes into effect. A waiting period can be as long as two weeks.

Long-term disability insurance is another type of policy that employers can offer. With this kind of business disability insurance, employees receive a percentage of their former salary, for instance 60 percent. These policies typically go into effect after short-term disability insurance has run out. Long-term business disability insurance can then last anywhere from five years to the lifetime of an employee.

Whether employees have only short-term disability insurance or long-term disability insurance as well, the policies typically include certain other protections for them. Ordinary business disability insurance includes a no cancellation clause, which allows buyers to continue to purchase their disability insurance at the same premium and for the same benefits. The only time the insurance company can cancel them is if policyholders stop paying their premiums. Another clause in business disability insurance policies is the guaranteed renewal clause, which allows the insurance company to raise premiums as long as it is doing so for all similar customers.