After being injured, you may be unable to work and earn a living for you and your family. To combat this risk, employees can be covered by workers' compensation or disability insurance. While both of these types of policies can help cover your bills when injured, they are applicable in different situations.
Workers' Compensation Vs. Disability Insurance
While workers' compensation and disability insurance are similar, they differ in a few key areas. Workers' compensation is a type of insurance that is purchased by an employer and is mandatory in most states. This kind of insurance pays benefits if you are injured while on the job. Disability insurance is a type of policy that can be purchased by an employer or by an individual. This kind of insurance will pay benefits when you are disabled, even if the injury did not occur on the job.
Payment for Treatment
When you are injured on the job, workers' compensation can pay for your medical treatment as well as for the time that you are unable to work. This type of insurance should take care of your medical bills directly. If you are injured off the job, however, disability insurance usually will not directly pay for your medical expenses. It will simply provide you with a cash payment that you can use as you see fit. Most of the time, disability cash benefits are used to make up for your lost wages.
Tax Considerations
When you receive disability benefits, you may have to pay taxes on the amount of money that you receive. When disability insurance is paid for by your employer, the benefits that you receive will be taxable. If you pay for the disability insurance with your own after-tax money, you will not have to pay income taxes on the benefits that you receive. The benefits that you receive will usually be somewhere between 40 and 65 percent of your income. This means that they could be comparable to your after-tax paycheck. If you receive workers' compensation benefits, you do not have to pay taxes on the amount that you receive.
Government Benefits
The government helps provide both types of benefits in a way. The government requires businesses to purchase workers compensation benefits. In some states, they require businesses to buy from a state-run workers compensation insurance pool. If you do not have disability insurance, you may be able to obtain benefits through the Social Security disability program. Social Security disability can give you benefits if you suffer from a long-term disability. Ideally, this program would only supplement another disability policy that you have instead of being your only means of support.
