Disability Insurance Form

Disability Coverage: From a Workers Guild Project to a Critical Employee Benefit

Natalie Burg

The evolution of Disability insurance has been a long one. It began 200 years ago and now is the benefit workers enjoy as a compliment to their core health insurance.

Through it all, one thing has remained the same: workers have long valued the security of knowing they have income protection in the event of disability.

Here’s how this long-favored benefit came to be what it is today.

The Early Days of Disability Insurance

In the early 1800s, European workers’ guilds, unions, and mutual aid societies started banding together to offer financial security for sick and injured workers.

This earliest version of workplace insurance went by several names:

  • sickness insurance
  • sick benefits
  • health insurance

It wasn’t anything like health insurance as we know it today. Instead, it was much more like what we now call Disability insurance.

Though called health insurance, this early form of insurance covered income, rather than medical expenses. There were a couple reasons:

  1. Loss of income was the main financial disaster that threatened families.
  2. There wasn’t all that much medical care available in the early 1800s.

According to the book Employment and Health Benefits: A Connection at Risk, “hospitals were, to a considerable extent, sick houses for the poor and those infected with contagious diseases. Medical practices had little capacity to prevent or alter the course of disease.”

As medical care improved, employers began offering medical coverage to employees. It still looked different from modern health insurance, but it was the beginning of the distinction between:

  • insurance that paid for income
  • a benefit that covered medical expenses

Disability Insurance Becomes A Commercial Offering

A major step in the development of Disability insurance was when it started to become a commercial offering from a company, rather than a collective action by a group of workers. These insurance products first emerged in England around 1850. They covered accidental injury or death during railway and steamship travel.

“Disability insurance expanded and evolved to cover other types of accidents and illnesses,” says Liz Supinski, SHRM’s director of research projects and insights.

Disability insurance grows into two forms:

Short-term Disability insurance provides for a set, limited time, often around six months.

Long-term Disability insurance covers lost income for a longer period of time, depending on the policy.

A Benefit You Have Access to Through Your Employer

Disability insurance sales grew significantly after World War I, according to the Social Security Administration. But that fact would actually turn out to be an obstacle to its continued expansion after the collision of two factors:

The companies that wrote the early Disability insurance policies were more experienced in life insurance, and their lack of experience resulted in a lack of protection for themselves. In some cases, the benefit increased the longer the policyholder was disabled, creating a disincentive to return to work.

That flaw became crushing in the 1930s when the Great Depression triggered a dramatic rise in Disability insurance claims.

The fallout was so severe that Disability insurance became a controversial issue, leading to series of events:

  • Disability coverage was left out the Social Security Act of 1935, but the push for and against Disability insurance as a Social Security benefit continued.
  • Private Disability insurance sales began to rebound in the 1940s, with companies writing much more restrictive policies than in the past.
  • According to the U.S. Bureau of Labor Statistics (BLS), employees were first able to access disability benefits through their employers around 1925. How prevalent that offering was at that time is unclear.

Disability Insurance Today

What You Should Know:

  • Short-term Disability insurance covers a fixed percentage of lost income for a set period of time. It’s typically 60% of income for around six months.
  • Long-term Disability insurance also covers an average of 60% of lost income after a three- to six-month waiting period, and with a median maximum payout of $8,000 per month.
  • Employers tend to pay the full premium for both Short-term and Long-term Disability insurance plans.
  • Employees typically become eligible after a three-to-six-month waiting period after becoming employed.
  • Neither Short- nor Long-term Disability benefits provide employees with job protection.

(But the Family Medical Leave Act and Americans with Disabilities Act do, so these laws, in addition to the employer’s internal policies, determine whether an employee’s job is held for them, and for how long).

Disability insurance has come a long way since being a collective action project among workers two centuries ago. Today’s Short- and Long-term Disability insurance products offer workers financial security for themselves and their families.

This informational material shall not be considered financial advice. The Hartford assumes no responsibility for any financial, investment, or tax-related decisions. Those seeking resolution of specific financial, legal, tax, or business issues, questions, or concerns regarding this topic should consult their own financial, investment, tax, legal, or other business consultants, advisors, or other professionals.

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