Disability Insurance for People Who Work With Their Hands

Why this matters

Your income is your body. A tech who cannot climb a ladder, lift a condenser, kneel in a crawlspace or grip a wrench has lost the job, even if they can still drive, read and talk. Most techs assume workers' comp has them covered. It covers injuries that happen at work. The torn rotator cuff from a weekend softball game, the herniated disc from moving a couch, the motorcycle crash, the cancer, the heart attack: none of those are comp claims, and they are the larger share of what puts a working-age person out for months. Disability insurance is what pays you then, and the words in the policy decide whether it pays a tech at all.

This is general information, not personal financial advice.

What already covers you, and where each one stops

Before buying anything, know the floor you already stand on.

• Workers' comp pays wage replacement and medical bills for injuries and illnesses arising out of your employment, and nothing else. See related: What Workers' Comp Pays You If You Get Hurt.
• Social Security Disability Insurance (SSDI) is the federal backstop, and it is strict. You must be unable to do any substantial gainful activity, not just your trade, because of a condition expected to last at least 12 months or end in death. Benefits start only after a five-full-month waiting period, you need enough recent work credits, and initial applications are commonly denied and take many months to resolve on appeal. SSDI is for the person who cannot work at anything, which is not most injured techs.
• State disability programs exist in only a handful of places. California, New Jersey, New York, Rhode Island and Hawaii run mandatory short-term disability programs funded through payroll, paying a partial wage for a limited number of weeks. Several other states have added paid family and medical leave programs that also pay during your own serious health condition. Most states have neither. Check your own state labor department.
• FMLA (the federal Family and Medical Leave Act, administered by the U.S. Department of Labor) protects your job for up to 12 weeks of unpaid leave, at employers with 50 or more employees within 75 miles, once you have worked there 12 months and 1,250 hours. It protects the job, not the paycheck.
• Paid sick time and PTO buy a week or two.

Everything between "a week or two" and "cannot work at anything for a year" is the gap private disability insurance fills.

Short-term versus long-term

Short-term disability (STD) covers the first weeks to months. Typical group plans start after an elimination period of 7 to 14 days (the waiting period before benefits begin, unpaid unless you use PTO) and pay around 60 percent of covered pay for up to 13 or 26 weeks.

Long-term disability (LTD) picks up after a longer elimination period, commonly 90 or 180 days, often timed to start where STD ends. It pays a percentage of covered pay, commonly 50 to 60 percent, up to a monthly cap, for a benefit period that can run a few years or to age 65. A long disability is where the real money is at stake: a tech out for two years loses two years of income, and only LTD addresses that.

The definition that matters most: own occupation versus any occupation

Every disability policy defines "disabled." For a person who works with their hands, this definition is the whole policy.

• Own occupation. You are disabled if you cannot perform the material and substantial duties of your own occupation. A tech who can no longer climb, lift or crawl qualifies, even if they could sit at a dispatch desk.
• Any occupation. You are disabled only if you cannot perform any occupation you are reasonably suited for by education, training and experience. A tech with permanent lifting restrictions who could work as a dispatcher, estimator, parts counter clerk or service manager is not disabled under this definition.
• The switch. Most group LTD plans use own occupation for the first 24 months of benefits, then switch to any occupation. That switch is the cliff for tradespeople, because almost every injured tech can do some lighter job.
• True versus modified own occupation. Individual policies sometimes offer true own occupation, which pays your full benefit even if you go to work in a different occupation. Modified own occupation pays only if you are not working at all. The difference is large for a tech who wants to move into estimating.

Two more pieces of fine print. "Your occupation" is usually defined as it is generally performed in the national economy, not as your particular job, so an insurer may describe a residential service tech's job more lightly than your actual day. And many group plans limit benefits for mental health and substance use conditions, commonly to 24 months, and exclude conditions treated in a lookback period before coverage started (a pre-existing condition clause, commonly three months before and twelve months after you enroll).

What "covered pay" leaves out

Group disability plans usually define covered earnings as base pay: your hourly rate times scheduled hours, or base salary. Overtime, commission, flat-rate production above base, spiffs and bonuses are commonly excluded. For a tech whose base is a modest hourly rate and whose real income comes from overtime or flat-rate production, a "60 percent" plan can replace well under half of what actually lands in the account. Ask HR, or read the certificate of coverage, for the exact definition of covered earnings.

Taxes on the benefit

The IRS rule turns on who paid the premiums. If your employer paid them, or you paid them with pre-tax dollars, the benefits are taxable income. If you paid them with after-tax dollars, the benefits are tax-free. Some shops offer voluntary LTD where you choose; paying after tax costs a little more per check and makes every benefit dollar a whole dollar. That is the cheapest single improvement most techs can make to their coverage.

The worked example: an off-the-job back injury

A residential HVAC tech earns base pay that adds up to 100 units a year, plus overtime and spiffs that add 20 more, so 120 units in all: 10 units a month. His shop provides employer-paid STD (7-day elimination, 60 percent of base for up to 26 weeks from the start of disability) and employer-paid LTD (180-day elimination, 60 percent of base, own occupation for 24 months of benefits, then any occupation, offset by any Social Security disability benefit).

On a Sunday he herniates a disc lifting a kayak onto his truck. Surgery follows. Not a comp claim: it did not happen at work.

Week 1. Elimination period. He uses PTO.

Weeks 2 to 26. STD pays 60 percent of weekly base. Weekly base is 100 divided by 52, about 1.923 units, so the benefit is about 1.154 units a week. Over 25 weeks: about 28.85 units.

Months 7 to 12. LTD begins after its 180-day elimination. 60 percent of base is 60 units a year, 5 units a month. Six months: 30 units.

Year one total. About 28.85 plus 30, or 58.85 units, against the 120 he would have earned: about 49 percent, and all of it taxable because the shop paid the premiums. The "60 percent" plan replaced less than half, because 60 percent of base is only 50 percent of his 10-unit month, and the elimination week paid nothing.

Month 30. He has collected 24 months of LTD benefits. His surgeon has set permanent restrictions: no lifting over a set weight, no ladders. The plan now switches to any occupation. The insurer reviews his file and concludes he can work as a dispatcher or estimator. Benefits stop, even though no such job is offered to him and it would pay a fraction of his field income.

What changes the answer. Suppose that at 28, while healthy, he had bought a small individual disability policy with after-tax premiums: true own occupation to age 65, 90-day elimination, sized to fill the gap the group plan left. Individual insurers commonly limit total coverage from all policies to roughly 60 to 70 percent of earned income, and an individual policy is usually underwritten on total earned income from your tax returns, including overtime and production pay the group plan ignored. At 65 percent of his 10-unit month, the insurer would allow 6.5 units of total coverage; the group plan's 5 leaves room for 1.5 units a month individually.

At month 30 that individual policy keeps paying 1.5 units a month, tax-free, even after he takes the estimator job, because true own occupation pays when you cannot do your own job regardless of what else you do. It is not his old income. It is the difference between a career change he can afford and one he cannot.

Buying an individual policy as a tradesperson

• Occupation class. Insurers rate manual trades as higher-risk classes, which raises premiums and can limit what you can buy. Some will not offer true own occupation to field trades at all. Moving into a supervisory role with less than a set share of manual duties can improve your class; ask how the insurer defines it.
• Non-cancelable and guaranteed renewable. Non-cancelable means the insurer cannot cancel the policy or raise the premium as long as you pay. Guaranteed renewable means they cannot cancel but can raise rates for your whole class. Non-cancelable is better and costs more.
• Buy it healthy. Underwriting looks at your medical history. A back you have already seen a chiropractor for may be excluded by rider. The time to buy is before the first injury.
• Riders worth asking about. Residual (partial) disability, which pays a proportional benefit when you can work but earn less; a cost-of-living adjustment while on claim; and a future increase option, which lets you add coverage as your income grows without new medical underwriting.

Your first moves this week

Pull your benefits certificate and find four things: the elimination period, the covered-earnings definition, when own occupation switches to any occupation, and who pays the premium. If your shop offers voluntary LTD, enroll and pay with after-tax dollars. If covered pay is base only and much of your income is overtime or production, get a quote on an individual policy from an independent agent who writes disability coverage for trades, and bring two years of W-2s.

References

• Social Security Administration, Disability Benefits (definition of disability, waiting period, work credits)
• IRS Publication 525, Taxable and Nontaxable Income (sickness and injury benefits)
• U.S. Department of Labor, Family and Medical Leave Act eligibility
• Your state labor department, for state disability or paid medical leave programs
• See related: What Workers' Comp Pays You If You Get Hurt, Reading a Benefits Enrollment Packet, Building an Emergency Fund on Seasonal Income