The payments are counted as unearned income.

NOTE          If the insurance payment is reduced because the person has other disability benefits like Social Security Disability or Worker’s Compensation, count only the reduced amount.

See Example of reduced disability insurance amount

All or part of the payments may be counted depending on who paid the premium for the policy:

·         If the employee paid any part of the premium with after-tax income, the same percent of the disability insurance payment is excluded.  For example, if the person paid half of the premium with after-tax income, then half of the payment is excluded.

·         If any part of the premium was paid with pre-tax income OR was paid by the employer, the same percent of the disability insurance payment is counted.

See Taxable Disability Insurance Example

Payments from group or individual insurance policies to help pay the living expenses of a person who becomes disabled.  Group disability insurance through employers is the most common type. Short-term disability coverage provides benefits for a specified length of time.  Long-term disability coverage may provide benefits up to age 65, or normal retirement age.

42 USC 1382a(a)(2)(B)

20 CFR 416.1121(b)

AAC R9-22-1909

26 USC 104

42 CFR 435.603

42 CFR 457.10, 300, 301 and 315