Many employers offer disability insurance as an employee benefit, usually at a discount or even for free.
It’s worth getting a policy if your job offers it, since disability insurance means you’ll still get paid if you're out of work because of a covered injury or illness, but employer-sponsored disability may not be enough protection on its own.
What is employer-sponsored disability insurance?
Also called group disability insurance, employer-sponsored disability is disability insurance that you get as a job perk rather than buying it for yourself.
Like a personal policy, employer-sponsored disability insurance pays out if you’re hurt or sick and need to take time off of work. Unlike an individual disability insurance policy, employer-sponsored disability insurance can come right out of your paycheck, and it’s sometimes covered by your employer.
If your company or employer offers it, you can either sign up for disability insurance when you start your job or during open enrollment. Your job may offer both short-term and long-term disability insurance, though employer-sponsored disability insurance is usually short-term.
Short-term disability insurance: Pays out for between 3 to 6 months, sometimes up to one year.
Long-term disability insurance: Pays out for a year or more, and can even last through retirement age.
Employer-sponsored disability insurance can work with other types of disability coverage. So if you already have your own long-term disability insurance policy, you can collect benefits from your employer-provided policy while you wait for your individual policy’s benefits to begin.
→ Read more about group disability insurance
How does employer-sponsored disability insurance work?
Think of the disability insurance you get through work as insurance for your income. Disability insurance pays out in case you can’t work because of an injury or illness — you may never need to use it, but if you do, you’ll be glad to have it.
If you become disabled, you’ll file a claim with the disability insurance company, not your work. After the elimination, or waiting period, is up, you’ll get regular payments that you can use just like your paycheck.
That means you can use your employer-sponsored disability insurance payments for whatever you need, including mortgage payments, car loan payments, childcare, utility bills, and groceries.
Who qualifies for disability insurance through work?
Employer-sponsored disability insurance may only be offered to full-time employees — it depends on the company.
But if it’s available to you, it’s easy to qualify for disability insurance through your employer since work-sponsored policies usually don't require a medical exam.
Your workplace disability insurance may have its own restrictions, but normally you’ll qualify for benefits if you can’t work after most types of injuries and illnesses, like:
Mental-health conditions
Broken bones
Nerve damage
Chronic pain
A stroke or heart attack
Cancer
Like individual disability insurance policies, employer-sponsored disability insurance won’t cover any pre-existing conditions you already had when you signed up for coverage.
Employer-provided disability insurance vs. private disability insurance
Employer-sponsored plans also have some weaknesses that individual disability insurance doesn’t, which is why we recommend that certain people, like high-earners or people with highly-specialized jobs, still get an individual long-term policy in addition to their employer-sponsored coverage.
Here are some of the limitations of employer-sponsored disability insurance:
Length of coverage: Your employer may only offer short-term disability insurance, leaving you out of luck if you’re unable to go back to work once the benefit period is up.
Cancellable coverage: Your employer can cancel your work-sponsored disability benefits if it decides not to offer coverage anymore.
Tied to job: You’ll lose your benefits if you leave your job or get laid off.
Taxable benefits: You’ll pay taxes on any benefits since you will have paid for the coverage with pre-tax dollars.
Can you buy more disability insurance from your employer?
Your employer may or may not give you the option of getting additional coverage through work, but you can always increase your total disability insurance with your own personal policy or with supplemental disability insurance.
Supplemental disability insurance helps cover gaps in your existing coverage. If you only have insurance through your work, you can use supplemental disability insurance to increase your coverage.
Is employer-sponsored disability insurance worth it?
Yes, employer-sponsored disability insurance is worth it, even if you also need your own long-term disability policy.
One of the main reasons why it’s worth opting-in is that work-provided disability insurance is usually a bargain. Normally, short and long-term disability insurance costs about 1% to 3% of your entire income. Employer-provided coverage, on the other hand, may only cost a few dollars per paycheck — and it might even be free.
Because of its price, work-provided disability insurance is especially worth it if you can’t afford a regular policy yet or you are just starting in your career and don’t have much saved up. If the worst happens and you can’t work, you’ll still have some income for at least a little while.
Do employers always offer you disability insurance?
Only California, Hawaii, New Jersey, New York, and Rhode Island require employers to offer temporary disability insurance, also called state disability insurance. Otherwise, your employer doesn’t have to offer disability insurance.
You still have some workplace protection if your employer doesn’t offer disability insurance, at least for injuries sustained on the job. Every state except Texas requires employers to carry workers’ compensation insurance, which pays out for workplace injuries.
You can also apply for Social Security Disability Insurance if you can’t work, but it can be hard to get approved for benefits. Just 31% of applicants were approved for benefits from 2010 to 2019. [1]
Frequently asked questions
Do employers ever offer long-term disability insurance?
Yes, though it’s more common for employers to offer short-term disability insurance, some do offer long-term coverage.
Should I get my employer-sponsored disability insurance
Yes, if your employer offers long-term disability insurance you should take it, especially if it’s free or you don’t have to pay much for coverage. You may not get the same protection that comes with a private plan, but having coverage means you can temporarily collect some benefits if you’re hurt or sick.
Can you get fired while you’re on disability?
Disability insurance doesn’t guarantee job protection, so depending on the circumstances, your employer may be able to fire you while you’re getting disability benefits. If you think you may have been terminated unfairly or illegally, you should consult a lawyer.
