Office of Legislative
Research
Research
Report
August 11, 2016
2016-R-0144
Connecticut General Assembly
Office of Legislative Research
Stephanie A. D'Ambrose, Director
Room 5300
Legislative Office Building
Hartford, CT 06106-1591
PRIVATE DISABILITY INSURANCE IN
CONNECTICUT
By: Alex Reger, Legislative Analyst II
ISSUE
Explain disability insurance, including benefit and elimination periods. Describe the
major laws and regulations governing disability insurance in Connecticut. Explain
how disability insurance in Connecticut differs from workers’ compensation
insurance.
SUMMARY
Disability insurance, also known as income protection coverage, pays part of an
insured’s income when he or she is disabled and unable to work as a result of a non
work-related sickness, injury, or pregnancy. These policies generally pay an insured
for the duration of a benefit period that begins after an elimination period (i.e., the
time the insured must wait before collecting benefits).
There are two types of disability insurance policies: short-term and long-term.
Short-term policies have shorter benefit periods, typically between six months and
a year, and shorter elimination periods. Long-term have longer benefit periods,
generally over a year, and longer elimination periods.
In general, private disability insurance is purchased through an employer (i.e.,
group coverage) or by an individual (i.e., individual coverage). This type of
insurance is different from Social Security Disability Insurance, which provides
disability benefits as part of the federal Social Security program.
Like disability insurance, workers’ compensation insurance also provides income
replacement but is generally limited to insureds who are unable to work as a result
of sickness or injury sustained during or resulting from employment.
August 11, 2016
Page 2 of 6
2016-R-0144
DISABILITY INSURANCE
Group vs. Individual Coverage
Group coverage refers to a disability policy offered through an employer as a
benefit to an employee. In general, group coverage allows an individual to purchase
private disability insurance without going through the underwriting process.
(Underwriting is an insurance company’s assessment of a person’s medical profile
and other risk factors to determine the person’s eligibility for coverage and price of
such coverage.)
Individual coverage refers to a disability policy purchased by an individual from an
insurance company or through an agent. In general, individual coverage requires an
insured to complete the underwriting process.
As with any type of insurance policy, insurers require an insured to meet the
policy’s conditions before receiving benefits. For disability insurance, this often
means meeting any applicable elimination period and the standards for total,
partial, or residual disability.
DISABILITY INSURANCE IN CONNECTICUT
Regulations and Minimum Coverage
In Connecticut, disability insurance is regulated as a subcategory of accident and
health insurance.
Under state regulation, disability insurance must provide at least six months of
coverage, except in cases of pregnancy, childbirth, or miscarriage, when a policy
must provide at least one month of coverage. Insurers are prohibited from reducing
benefits because the insured receives an increase in Social Security or similar
benefits during the disability period. Policies offering payments to insureds age 62
and older must meet additional requirements (Conn. Agencies Regs. § 38a-505-9).
Income Replacement
The amount of income replaced under a disability insurance policy varies. While the
Connecticut Insurance Department does not separately track disability insurance, a
nationwide survey of employer-sponsored (i.e., group coverage) plans by the
federal Department of Labor (DOL) shows that 78% of short-term policies and 75%
of long-term policies replace at least 60% of an insured’s income. Tables 1 and 2
show the percent of short- and long-term disability policies, respectively, by
percent of income replaced.
August 11, 2016
Page 3 of 6
2016-R-0144
Table 1: Short-Term Disability Insurance Policies for Private Industry
Workers by Percent of Annual Income Replaced
14% of short-term disability insurance policies
replace
More than 69% of annual income
24% of policies replace
Between 61% and 69% of annual income
40% of policies replace
60% of income
20% of policies replace
50% of income
Source: http://www.bls.gov/ncs/ebs/benefits/2015/ownership/private/table26a.htm. Two percent of policies have
different annual income replacement levels.
Table 2: Long-Term Disability Insurance Policies for Private Industry
Workers by Percent of Annual Income Replaced
11% of long-term disability insurance
policies replace
61% or more of annual income
64% of policies replace
60% of annual income
25% of policies replace
59% or less of annual income
Source: http://www.bls.gov/ncs/ebs/benefits/2015/ownership/private/table30a.htm.
Both short- and long-term policies generally limit weekly benefits to a fixed
maximum listed in the policy, regardless of an insured’s annual income. For
example, according to DOL, 75% of short-term plans have a maximum weekly
benefit amount of $1,300 or less.
Benefit Periods
The benefit period is the length of time a policy will pay an insured for his or her
disability. For example, a policy with a one year benefit period pays an insured a
portion of his or her salary for up to one year of disability, after an elimination
period.
The Connecticut Insurance Department does not separately track disability
insurance benefit periods. However, according to the DOL survey, 50% of
employer-sponsored short-term disability plans for private industry workers offer a
benefit period of at least 26 weeks.
August 11, 2016
Page 4 of 6
2016-R-0144
According to the DOL, long-term policies generally pay benefits until retirement or
another time specified in the policy. The benefit period in long-term policies may
also depend on the age at which the employee claims benefits.
Elimination Periods
An elimination period, sometimes called a waiting or qualifying period, is the period
of time between the onset of the injury, illness, or functional loss and the time the
insured is eligible for benefits. For example, a policy with a 100-day elimination
period begins paying benefits on the 101
st
day of the injury, illness, disability,
confinement in a nursing home, or other benefit trigger.
Connecticut regulations set maximum elimination periods based on a policy’s
benefit period. Table 1 shows the maximum elimination period per benefit period.
Table 1: Maximum Elimination Period by Benefit Period
Benefit Period
(Years)
Maximum Elimination Period
(Days)
Less than 1
90
1-2
180
More than 2
365
Source: Conn. Agencies Regs. § 38a-505-9(F)
According to the Connecticut Insurance Department, most short-term disability
policies filed in the state have a one-year benefit period.
Total, Partial, or Residual Disability
Connecticut regulations define three types of disability: “total,” “partial,” and
“residual” (Conn. Agencies Regs. § 38a-505-5). Generally, policies offer different
benefits based on the extent of an individual’s disability.
Total Disability. In general, an individual is totally disabled if he or she is
completely unable to work in a field for which he or she is qualified. Policies are
allowed to define total disability in relation to specific duties but are prohibited from
generalizing based solely on an individual’s inability to perform (1) other
occupations for which he or she is not qualified, (2) every aspect of his or her job
(Conn. Agencies Regs. § 38a-505-5). Total disability cannot be based solely on an
individual’s inability to engage in a training or rehabilitation program.
August 11, 2016
Page 5 of 6
2016-R-0144
Within these regulations, insurers are allowed to (1) specify the requirements of the
complete inability of the person to perform all of the substantial and material duties
of his or her regular occupation and (2) require the person receive care from a
physician.
Insurers may also define “totally disabled” in any less restrictive manner.
Partial Disability. Partial disability is an individual’s inability to perform one or
more, but not all, of the major, important, or essential duties of his or her
employment. It may also be related to compensation, time worked, or other
experience factors. Policies providing total or partial disability benefits may not
include more than one elimination period.
Residual Disability. Residual disability, also called proportionate disability, is an
inability to perform (1) some part of the major, important, or essential duties or (2)
all usual business duties for as long as is usually required.
Policies providing residual disability benefits may require a qualification period,
during which an insured must be continuously totally disabled before residual
disability benefits are payable. This qualification period cannot be longer than the
elimination period for total disability.
COMPARISON TO WORKERS’ COMPENSATION INSURANCE
By law and with few exceptions, employers must provide workers' compensation
insurance for their employees (CGS Chapter 568).
Workers’ compensation benefits fall into two categories: (1) payments for medical
expenses and treatment of a work-related injury or disease and (2) benefits that
compensate an injured employee for lost earnings and for any benefit disability.
The latter benefits are called wage-loss and indemnity benefits.
Workers’ compensation insurance, like disability insurance, also provides income
replacement. However, workers’ compensation is generally limited to insureds who
are unable to work as a result of sickness or injury sustained during or resulting
from employment.
Under state workers' compensation law, an employee who is injured on the job
while performing a job-related activity or becomes ill due to work-related reasons is
covered by workers' compensation insurance. This means (1) the employee’s
medical treatment for that injury or illness will be covered by the employer's
workers' compensation insurance at no cost to the employee and (2) the employee
August 11, 2016
Page 6 of 6
2016-R-0144
will receive certain wage replacement during the time he or she is out of work
recovering.
The law also bars the employee from bringing a civil lawsuit against the employer
over the same injury or illness.
AR:cmg
