Workers Comp vs Disability Insurance - What’s The Difference? (Michigan Commercial Insurance 101)

Workers Comp vs Disability Insurance -  What’s The Difference?

Why This Comparison Matters

As a Michigan business owner, protecting your employees isn’t just the right thing to do—it’s required by law in many cases. Two types of coverage often cause confusion: workers’ compensation insurance and disability insurance. While both help employees who can’t work due to injury or illness, the circumstances they cover are very different. Let’s break it down.

What Is Workers’ Compensation Insurance?

Workers’ compensation insurance—commonly called “workers comp”—is a state-mandated coverage for most businesses in Michigan.

Here’s what it does:

• Covers medical expenses for work-related injuries or illnesses
• Replaces a portion of lost wages while the employee recovers
• Provides rehabilitation benefits to help employees return to work
• Includes disability benefits in cases of permanent injury
• Can also cover occupational illnesses, such as lung damage from chemical exposure

In short, workers comp is all about protecting employees when something happens on the job.

What Is Disability Insurance?

Disability insurance steps in when an employee can’t work due to an injury or illness outside of work. Unlike workers comp, it’s not required by law but is often offered as part of an employee benefits package—or purchased individually.

Here’s how it works:

• Short-Term Disability (STD): Replaces income for a few weeks or months
• Long-Term Disability (LTD): Provides income replacement for much longer—sometimes until retirement, depending on the policy
• Covers everyday accidents or illnesses, such as a skiing injury or a serious medical condition

Importantly, disability insurance does not cover medical bills—it’s focused on replacing lost income.

Key Differences Between Workers Comp & Disability Insurance

The easiest way to think about the difference is this: workers’ compensation covers injuries or illnesses that happen on the job, while disability insurance covers those that happen off the job.

Workers comp pays for medical expenses and a portion of lost wages when the injury or illness is work-related, and in Michigan, employers are legally required to carry it in most cases.

Disability insurance, on the other hand, is focused on replacing income when an employee can’t work due to something unrelated to their job, like a skiing accident or a serious illness. It doesn’t cover medical bills, and it isn’t legally required—though it’s often offered as part of a benefits package or purchased individually.

Workers comp premiums are paid by the employer, while disability insurance can be funded by the employer, the employee, or a combination of both, depending on the plan.

Why Michigan Businesses Should Understand Both

The main point of confusion comes down to where the injury or illness happens.

• If it’s on the job → workers comp.
• If it’s off the job → disability insurance.

One isn’t a substitute for the other. Together, they create a safety net that ensures employees are financially supported whether something happens at work or on their own time.

For employers, workers comp ensures compliance with Michigan law and protects your business from lawsuits related to workplace injuries. Offering disability insurance on top of that shows employees you value their well-being beyond the workplace.

Final Thoughts

To sum it up:

• Workers comp covers on-the-job injuries and illnesses.
• Disability insurance covers off-the-job injuries and illnesses.

Both serve critical but distinct roles in protecting employees. By understanding the difference—and offering both when possible—you can build a stronger, more secure workforce.

📞 Need help reviewing your Michigan workers comp policy or setting up the right employee benefits package? Contact us today—we’ll make sure your business and your team are fully protected.