Group Disability Insurance: Protecting Employee Income
Disability insurance replaces a portion of an employee's income when they cannot work due to illness or injury. California already mandates short-term disability coverage through the state's SDI (State Disability Insurance) program, funded by employee payroll deductions. Employer-sponsored disability insurance supplements SDI with higher income replacement or longer benefit periods than the state program provides.
California SDI vs Employer-Sponsored Disability
California SDI provides approximately 60–70% of weekly wages (up to $1,620/week in 2026) for up to 52 weeks for non-work-related illness or injury. SDI is employee-funded through payroll deductions (0.9% of wages up to the taxable wage ceiling). Employer-sponsored short-term disability (STD) supplements SDI by: covering the gap during the SDI waiting period (7-day elimination period), topping up benefits above the SDI cap, or providing coverage for higher-paid employees whose SDI replacement rate falls below 60%.
Long-Term Disability (LTD)
SDI only covers disabilities for up to 52 weeks. Long-term disability (LTD) picks up where SDI ends. Typical LTD plans cover: 60–66.7% of pre-disability income, after a 90-day (or end of STD benefit) elimination period, to age 65 or Social Security normal retirement age. LTD is where the real protection lies — a serious disability (cancer, heart disease, neurological condition) that lasts years can be financially catastrophic without LTD. Employer-sponsored LTD plans at group rates typically cost $15–$25/employee/month for a solid benefit.
Integration with California SDI
Employer LTD plans must be carefully coordinated with California SDI to avoid overpaying or underpaying benefits. Most LTD plans are written "integrated" with social insurance benefits — the LTD benefit is reduced dollar-for-dollar by SDI and Social Security disability benefits received. This integration reduces carrier risk and keeps premiums lower, while ensuring employees receive their target income replacement rate.