What is disability insurance? Disability insurance replaces income lost due to injuries and illnesses that are not job related. Disability insurance is available through commercial insurance companies or through self-insurance and comes in both short- and long-term forms. There are numerous options for designing a disability insurance plan to meet the needs of a particular employer. The most important federal law regulating employer-provided disability insurance is the Employee Retirement Income Security Act (ERISA).

In most states, employers are not legally required to provide disability insurance. Only six jurisdictions (California, Hawaii, New Jersey, New York, Puerto Rico, and Rhode Island) require that employees be covered by short-term disability insurance through state-run programs or by equivalent private or self-insurance coverage (the state program is mandatory only in Rhode Island). The state programs provide only minimal benefit levels and do not provide long-term coverage.