Disability Insurance
State Disability Insurance (SDI) is a statutory (state-regulated and state-audited) state disability program for short-term disability income replacement. The program is in effect since 1946.
The costs of the program are covered by contributions to the State Fund in the form of SDI tax paid by employees, optionally by employers. Employee contributions to the state fund are deductible as state taxes. There is a limit for the annual contribution. For example, in 2003 it was $812.18.
The plan provides a tax-free replacement of income of 55% of an employee's average weekly pay, up to a maximum weekly benefit, which, e.g., in 2003 was $728.00 ($50/week minimum) . Benefits become available on the eighth consecutive day of disability and continue for up to 52 weeks of disability if the beneficiary paid SDI taxes as an employee, 39 weeks the beneficiary had voluntary self-employment coverage.
Disability insurance is designed to replace a percentage of your gross income (anywhere from 45-80%) should you become ill or injured and are unable to work. A 20 year old worker has a 30% chance of becoming disabled before retirement age! It makes sense to protect yourself and your family.
There are many companies providing disability insurance and every policy is different. Some disability insurance policies are more restrictive than others with their definition of disability. The following is a list of things to look for in a disability insurance policy:
- an income replacement percentage of 60-80%
- long-term disability that covers you to 65 years of age
- a liberal definition of disability that includes conditions like mental illness, stress disorders, severe migraine headaches and back pain
- what does the company define as income to be replaced? salary only? bonuses? commissions?
- what is the maximum monthly payment? Some companies offer policies specifically designed for professionals and high-wage employees. These may be called "own employment policies" meaning that you are considered "disabled" if you are unable to do your job not just any job.