Workers’ Comp Vs. Disability Insurance

workers comp vs disability insurance

Explaining Workers’ Comp vs Disability Insurance

Key Takeaways:

  • Workers’ compensation insurance and disability insurance both provide financial protection to an individual when they are unable to work because of an injury, illness, or disability.
  • Both short and long term disability insurance can be purchased by an individual or employer and cover non-work related injuries and illnesses, as well as supplemental income when injured at work.
  • If you are severely injured at work and are unable to return or have an extended recovery time, you can have a worker’s comp disability assessment done to determine permanent loss of function.

When reviewing your overall insurance portfolio, you want to understand the different types of insurance coverage to ensure you and your family are properly protected. One insurance category causes confusion for many people — worker’ comp vs disability insurance. Keep reading for a better understanding of the differences and who is responsible for coverage.

What’s the Difference Between Workers’ Comp and Disability?

Workers’ compensation and disability are two types of insurance or benefits that provide financial protection to individuals who are unable to work due to illness, injury, or disability. However, there are some key differences between the two.


Workers’ compensation is a type of insurance that provides benefits to employees who suffer a work-related injury, illness, or disability. It is typically provided by employers and is mandated by state law in most jurisdictions. However, federal employees and certain federally designated job categories, like longshoremen, are covered by a federal workers’ comp program.

Disability insurance, on the other hand, is a type of insurance that provides benefits to individuals who are unable to work due to a non-work-related illness or injury. This type of insurance coverage can be purchased by the individual or provided by their employer as part of an employee benefits package. Employer-provided disability insurance coverage is typically reserved for higher level positions as an employment incentive.


Workers’ compensation benefits are typically available to employees who are injured or become ill while performing job-related duties. Most of the time, when an employee is hurt on the job or contracts an occupational disease, it is regarded as a workers’ compensation injury that qualifies for a claim under your employer’s state-mandated insurance policy.

Following a workers’ compensation injury, the employee may be eligible to receive medical coverage, wage replacement, and other benefits if the claim is approved. To qualify for these benefits, however, both the employee and the employer must take specific actions to make sure the injury qualifies for compensation.

Here are some examples of work-related injuries or illnesses:

  • Sprains, strains, or ligament tears from stretched or torn tendons or muscles
  • Deep cuts or lacerations
  • Contusions
  • Burns
  • Fractures
  • Cumulative trauma, such as tendonitis and carpal tunnel syndrome
  • Eye injuries
  • Exposure to toxic chemicals

In contrast, disability insurance benefits are available to individuals who are unable to work due to a non-work-related illness or injury, such as a disabling illness or injury that occurs outside of the workplace. These can be related to recreational activities such as sports injuries, or more long term illnesses like cancer or debilitating cardiac illnesses.

Purpose and Basic Benefits

Workers’ compensation benefits are designed to provide financial compensation to injured or ill workers’ for lost wages, medical expenses, and rehabilitation costs related to a work-related injury or illness.

In contrast, disability insurance benefits are designed to provide income replacement for individuals who are unable to work due to a non-work-related illness or injury, and they may also cover other expenses such as medical bills and rehabilitation costs.

Broader in scope, disability insurance typically covers from 50% to 80% of your income and can be used for living expenses, loan repayment, and building savings or retirement accounts.

How Are They Funded?

Workers’ compensation is typically funded by employers, either through insurance premiums or self-insurance, and it is mandated by state law in most cases.

Disability insurance, on the other hand, is typically funded by employers who offer it as part of an employee benefits package but can be acquired by individuals who purchase policies on their own. Disability insurance policies may also be funded through government programs, such as Social Security Disability Insurance (SSDI) in the U.S., which is funded through payroll taxes.

Legal Requirements for Each Type of Insurance

Workers’ compensation is a legal requirement for most employers in many jurisdictions, and employers are required to carry workers’ compensation insurance or be self-insured to cover their employees in case of work-related injuries or illnesses.

Disability insurance, on the other hand, is not a legal requirement for employers in most cases. However, five states, California, Hawaii, New Jersey, New York, and Rhode Island, have laws or regulations that require employers to provide short-term disability insurance benefits to their employees.

Each Type of Insurance’s Scope of Coverage

Workers’ compensation typically covers only work-related injuries or illnesses, and the benefits are usually limited to a percentage of the employee’s wages. However, there are some exceptions to the types of workers that must be covered, including:

  • Domestic workers employed privately by a homeowner
  • Casual employees who earn less than $2K per year
  • Railroad workers (who are covered under a federal plan)
  • Inmates at correctional facilities
  • Independent contractors
  • Federal employees

Disability insurance, on the other hand, can cover a wider range of illnesses or injuries that prevent an individual from working, including non-work-related illnesses, accidents, or injuries. The scope of coverage and benefit amounts will vary depending on the specific disability insurance policy.

What if I’m Self Employed or an Independent Contractor?

Like so many people today, you may be self-employed or an independent contractor and require coverage for either workers’ comp or disability insurance. Luckily, there are many insurance companies that offer both types of insurance at reasonable rates.

You can visit an online marketplace, like, to get quotes for all types of insurance which allows you to get the best price possible for the type of coverage you want.

What Is the Difference Between Long-Term and Short-Term Disability?

There are actually two types of disability policies available. Short-term disability insurance is meant to protect you immediately following a serious illness or injury. Long-term disability insurance is meant to continue income replacement if your condition prevents you from working past the end of your short-term disability benefit period, possibly even until retirement, depending on your plan.

Short-term disability and long-term disability are two types of insurance policies that provide income replacement in the event that an individual becomes unable to work due to illness or injury. The main differences between short-term disability and long-term disability are the duration of coverage, the waiting period before benefits begin, and the extent of coverage provided.

What is the Duration of Coverage?

Short-term disability is typically designed to provide coverage for temporary disabilities that may result from accidents, illnesses, or surgeries, and is meant to provide income replacement during the initial stages of disability when an individual may be recovering and expected to return to work relatively soon.

In contrast, long-term disability is designed to provide coverage for more serious and long-lasting disabilities that may prevent an individual from working for an extended period of time, or even permanently.

Are There Waiting Periods Before Benefits Start?

Short-term disability policies usually have a shorter waiting period (usually between 7-14 days), which is the time an individual must wait after becoming disabled before they can start receiving benefits. If employer sponsored, you may be required to use all accrued paid leave before your benefits take effect.

Waiting periods for short-term disability policies can range from a few days to a few weeks. Long-term disability policies, on the other hand, generally have longer waiting periods, ranging from several weeks to several months.

Are the Coverage Amounts Different?

Short-term disability policies typically provide coverage for a percentage of a person’s pre-disability income, usually ranging from 60% to 80%. However, short-term disability policies often have a cap on the maximum benefit amount and may have a limit on the duration of benefits.

Alternatively, long-term disability policies typically provide coverage for a lower percentage of the individual’s pre-disability income, usually around 40% to 60%, but may provide coverage for a longer duration. Long-term disability policies may also have a cap on the maximum benefit amount and may be subject to periodic reviews to determine continued eligibility for benefits.

Is There Individual Coverage Available if Your Employer Doesn’t Offer the Option?

Short-term disability insurance is often provided by employers as part of their employee benefits package, and coverage is usually available to all eligible employees, except in the states mentioned above, where it is mandatory. If not a benefit of your employment or you seek self-employment options, there are many insurance companies that offer individual policies.

Long-term disability insurance may also be offered by employers, but it can also be purchased individually by people wanting to supplement their employer-provided coverage or for self-employed individuals who do not have access to employer-sponsored coverage.

It’s important to carefully review the terms and conditions of any disability insurance policy, whether short-term or long-term, to understand the specific coverage provided, waiting periods, benefit amounts, duration of coverage, and any other policy limitations or exclusions. Consulting with a qualified insurance professional can also help in understanding the nuances of disability insurance and selecting a policy that best meets your needs.

Is There a Difference Between Short Term Disability vs Workers’ Comp?

Workers’ compensation is specifically for work-related injuries and covers medical and living expenses (in the case of permanent disability). Short-term disability coverage is designed to protect you if you are injured or become ill outside of work and can cover expenses in case of injuries, car accidents, and sickness or disease.

Both are beneficial to adequately provide full spectrum coverage and to protect you and your family.

What is the Workers’ Comp Disability Rating Scale?

You would never go to work with the intention of suffering a serious enough injury to prevent you from ever working again. But, while it isn’t a given, it is possible that you could sustain a life-altering injury at work.

According to data from the Bureau of Labor Statistics, over 2.6 million people experienced workplace injuries in 2021. While that’s a decrease from previous years, it is still a significant problem and one that requires insurance to guard against financial catastrophe.

In that group, some employees qualify for a type of workers’ compensation known as “permanent total disability.” Although it is uncommon, some employees suffer serious and long-lasting injuries or disabilities at work that require them to be compensated for the rest of their lives.

Upon extensive review of a person’s medical records and overall circumstances, workers’ compensation benefits may be granted to an employee permanently, partially, or temporarily.

The workers’ comp disability rating scale uses a scale of zero to one hundred. The chart’s points, also referred to as the impairment ratings % chart, indicate the seriousness of the occupational damage. This percentage determines the compensation sum and duration that will be paid if the employee is able to return to work.

If your injury or illness is deemed severe enough to have caused permanent and irreparable damage, doctors and other medical experts are provided to decide on the disability grade.

To determine ratings, most doctors, including those evaluating federal employees, will use the American Medical Association’s “Guide to the Evaluation of Permanent Impairment.” However, there are eight states that use state-specific impairment ratings, including: Florida, Illinois, Wisconsin, Utah, Minnesota, North Carolina, New York, and Oregon. If there is disagreement on the rating level, an employer, insurance provider, or employee can contest the rating and request a second medical opinion.

In many cases, a person’s degree of disability will categorized as one of the following and the percentage is how their benefits will be determined:

  • Mild – 25% disabled
  • Moderate – 50% disabled
  • Marked – 67% disabled
  • Total – 100 disabled.

To Sum Up

In summary, when talking about workers’ comp vs disability insurance, both are types of benefits that provide financial protection to individuals who are unable to work due to illness, injury, or disability. However, workers’ compensation is specifically for work-related injuries or illnesses and is typically mandated by law for employers, while disability insurance covers a broader range of non-work-related illnesses or injuries and is typically purchased by individuals or provided by employers as part of an employee benefits package.

If you are considering either type of insurance, learn more and request quotes from national insurance leaders at

About Kathryn Morstad

Kathryn has a background as a small business owner and currency trader. Kathryn also enjoyed a career as a Regional Director and COO in healthcare, specializing in operations, third-party insurance reimbursement, and revenue cycle management.