Understand the Difference Between Workers' Compensation and Disability Insurance

On the surface, workers' compensation and disability insurance may seem to cover the same ground. Both are designed to provide benefits to employees if they're unable to work due to illness or injury. Both cover a portion of lost wages. But that's where the similarity ends.

Workers’ Comp Basics

Workers’ compensation pays benefits to employees who become sick or injured while performing their jobs. Benefits are paid if the employer or the insurance company that issued the policy confirms that the employee’s illness or injury was work related. Workers’ compensation insurance is paid for by the employer and is mandatory* in all states, except Texas and Wyoming. Employees cannot purchase a policy on their own.

What’s Covered?

Workers’ compensation insurance covers medical expenses, including hospital visits, medications, emergency surgeries, and ongoing care costs, such as physical therapy. Lost wages are partially covered when the employee needs time away from work to recover. Disability benefits are available if the injury caused partial or permanent disability. If the employee dies following a work-related illness or injury, the policy provides a death benefit that typically includes funeral costs and survivor benefits for the employee’s family. Workers’ compensation benefits are paid no matter who was at fault. However, workers’ compensation laws generally prevent employees from suing an employer.

Disability Insurance: How It’s Different

Disability insurance is designed to help replace a portion of lost income when an injury or illness prevents the beneficiary from working. The illness or injury does not have to be work related. Unlike workers’ compensation, disability insurance does not cover medical or rehabilitation costs.

Two Types

Short-term disability covers employees for a temporary illness or injury lasting from a few weeks to a year or more. Long-term disability pays an income when a person is unable to work for long periods of time. Benefits could last from a few years up to retirement age.

All disability benefits vary by policy and type of injury or illness.

An employer may offer disability coverage as an employee benefit. However, employees can purchase disability coverage on their own.

*Agricultural workers, domestic employees and independent contractors are generally excluded from this requirement.