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Workers Compensation vs Disability Insurance: What’s the Difference?

For your best business protection and savings, we recommend bundling GL with some other important coverages on one Business Owners Policy!

For your best business protection and savings, we recommend bundling GL with some other important coverages on one Business Owners Policy!

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Employees who get injured or sick may need time off to recover. During this time, they may face financial hardship due to lost wages. Both workers compensation and disability insurance can help.  So workers compensation vs disability insurance, which helps an employee better? While they may seem similar, these two types of insurance have differences. This article will explore workers comp vs disability insurance.

Workers Comp vs Disability Insurance

So what is the difference between workers compensation and disability insurance? These provide financial support to individuals who suffer from an injury or illness that leaves them unable to work. But note that they’re not similar. The difference between workers comp and disability insurance is laid out below:

  • Workers compensation insurance is a type of insurance that employers must carry to provide benefits to employees who suffer from work-related injuries or illnesses. It covers medical expenses, rehabilitation costs, and a portion of lost wages. It is a no-fault insurance, which means that employees do not have to prove that their employer was at fault for their injury to receive benefits

  • Disability insurance, on the other hand, provides income replacement if an individual cannot work due to an injury or illness that is not work-related. It covers a portion of the individual's lost income for a specified period, typically up to a certain percentage of their salary. Individuals generally purchase disability insurance, and it is not mandatory


Here’s a table further tackling what is the difference between disability insurance and workers compensation insurance:

CriteriaWorkers CompensationDisability Insurance
CoverageCovers work-related injuries or illnessesCovers non-work-related injuries or illnesses
Mandatory/OptionalMandatory for most employersOptional, can be purchased by individuals
Source of FundsThe employer pays for coverageThe individual pays for coverage
Benefits ProvidedMedical expenses, rehabilitation costs, lost wagesIncome replacement
Fault RequirementNo-fault insuranceIt may require proof of disability or inability to work
Duration of BenefitsBenefits may be limited to a certain periodBenefits may be provided for a specified period, often until retirement age
Suitable ForHigh-risk jobsLower-risk jobs or non-work-related injuries or illnesses

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Which is Better Workers Comp or Disability Insurance?

Workers compensation insurance or disability insurance? It depends on the specific circumstances and needs of the employee. If the employee's illness or injury is related to their job, workers compensation is likely the better option, as it provides benefits specifically for work-related injuries or illnesses. 

On the other hand, if the employee's illness or injury is not related to their job, disability insurance may be the best preference.  Proceed to the sections below to for a discussion on workers compensation vs short term disability insurance and long term disability insurance. 


Short Term Disability vs Workers Comp

Short-term disability insurance vs workers compensation, how do these two differ? These are two types of coverage designed to provide financial support to individuals who cannot work due to injury or illness. While they share some similarities, important differences are worth exploring in depth.


Criteria for Eligibility

One key difference between disability insurance and workers compensation is the criteria for eligibility. Short term disability insurance typically requires an individual to have a disability that prevents them from performing their job duties for a short period, often defined as 90 days or less. In contrast, workers compensation benefits employees who have been injured or become ill while on the job, regardless of whether or not the injury or illness is permanent.


Source of Funding

Another important difference between short-term disability insurance and workers compensation is the funding source. Short-term disability insurance is usually paid for by the individual, either through a group policy provided by an employer or by purchasing an individual policy. In contrast, workers' compensation is funded by the employer and is mandatory for most in the United States.


Benefits Provided

Workers comp vs short term disability insurance differ in their benefits. Short-term disability insurance typically provides income replacement, covering a portion of an individual's salary when they cannot work due to disability. On the other hand, workers compensation provides medical and rehabilitation benefits and income replacement.


Duration of Benefits

Another important point in workers compensation vs disability benefits is the duration. Short term disability insurance benefits are typically provided for a shorter period, often up to six months, while workers compensation benefits may be provided longer.


Fault Requirement

Here’s another difference between short term disability and workers compensation; short term disability insurance is typically no-fault insurance, meaning the policyholder does not need to prove fault to receive benefits. On the other hand, workers compensation is also no-fault insurance in most states, but some states may require proof of fault to receive benefits.


Coordination of Benefits

Sometimes, individuals may be eligible for short-term disability insurance and workers' compensation benefits. However, the benefits may be coordinated in these cases to avoid duplication. For example, if an individual receives workers' compensation benefits, their short-term disability insurance may be reduced accordingly.


Long Term Disability vs Workers Comp

So workers compensation vs long term disability insurance; how do these two differ? Both are designed to provide financial support to individuals who cannot work due to injury or illness. However, important differences between the two types of coverage are worth exploring


Criteria for Eligibility

One of the key differences between long-term disability insurance and workers compensation is the criteria for eligibility. Long term disability insurance typically requires an individual to have a disability that prevents them from performing their job duties for an extended period, often defined as 90 days or more. In contrast, workers compensation benefits employees who have been injured or become ill while on the job, regardless of whether or not the injury or illness is permanent.


Source of Funding

Another important difference between long-term disability insurance and workers compensation is the source of funding. Similar to short-term disability insurance, long term disability insurance can be paid by the employer or the individual himself. On the other hand, workers comp is usually paid for by employers


Income Replacement Ratio

Long-term disability insurance versus workers compensation also differ in the benefits they provide. Long term disability insurance typically provides income replacement that’s 50%-70% of a covered individual’s salary. On the other hand, workers comp only covers two-thirds of covered person’s payroll. 


Duration of Benefits

Another key difference between long-term disability insurance and workers compensation is the duration of benefits. Long term disability insurance benefits may be provided for 2-10 years. On the other, workers comp only lasts for three to seven years. 


Suitable For

Another distinction on long term disability insurance vs workers compensation is which is suitable for who. Long term disability insurance is generally suitable for individuals who want to get coverage for an injury may it be work-related or not. On the other hand, workers comp is for those who only want income protection against work-related injuries.