Disability Insurance: Short Term vs. Long Term

Disability Insurance: Short Term vs. Long Term

Kim Pinnelli

by Kim Pinnelli
Senior Contributing Writer

May 11, 2020
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Disability Insurance: Short Term vs. Long Term

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What are the differences between the two, and why do you need them?

Long Term & Short Term Disability Insurance At A Glance

If you depend on your income for everyday expenses and bills, for how long would your savings support you without a paycheck? While most employers offer disability insurance to cover their employees if they have to take a leave of absence from work for short periods, few have insurance that will provide coverage for more than a matter of weeks.

There are two main types of disability insurance: short term disability and long term disability. Both have different requirements, as well as periods of time to receive a percentage of your income, and serve to replace a portion of your monthly base salary.

Short Term vs. Long Term: What are the differences?

Short term disability (STD) is insurance that will pay you a portion of your income if you are unable to work and run out of sick leave. Depending on your plan, if you are unable to work due to sickness or injury, you can receive a percentage of your usual income while recovering.

To qualify for this type of insurance, you must not be able to perform the typical duties of your job. If you choose to use your short term disability policy, you will only be able to receive supplementary income for a short period of time, typically between 13 and 26 weeks. Most policies will provide between 40 to 60% of the policy holder's weekly gross income when using their short term disability.

Covered situations include prolonged sickness lasting for an extended period of time, a disabling injury, or even the birth of a child where you need to take time off during the early weeks following the birth. It’s important to realize that if you are injured on the job, that would be covered primarily by workers compensation, and you wouldn't be able to use your short term disability insurance during your absence.

Long term disability (LTD) provides coverage which begins around the same time that short-term disability coverage would phase out – around 6 months after injury. These policies typically have a 90 or 180 day elimination period, after which you may submit a claim (assuming you are still unable to work due to injury or illness).

The duration of your benefits vary, but usually provide coverage until the employee can return to work or reaches their social security retirement age.

Long-term disability will protect your income if you are diagnosed with an illness that can affect your ability to earn an income for many years – such as cancer, accidental injuries, mental disorders, osteoarthritis, back pain, as well as cardiovascular and circulatory disorders, such as a heart attack or artery disease.

Why Do You Need Disability Insurance?

Nobody hopes to become injured to the point where they cannot work, but it is important to know that you're protected should the unexpected happen. In fact, more than one in four people in their twenties will experience a disability rendering them unable to work for 90 days or more.

While having an emergency fund to lean on during hard times is always a good idea, paying into a disability insurance plan can provide support and coverage for yourself, as well as the people in your household that depend on your paycheck. Especially in the case of long-term disability, your policy will likely protect your income for a longer time than self-insurance can.

How To Get Short-Term & Long-Term Disability Insurance

Most jobs will offer some kind of disability insurance that you can elect to pay into. In this situation to get coverage, you should sign up for employer-sponsored coverage through your work. Some employers that offer this kind of insurance will pay some or even all of the cost of premiums.

California, New Jersey, Hawaii, New York and Rhode Island employers are required to offer their staff at least a short-term disability policy.

Even if your workplace doesn't pay for disability coverage up front, many will offer it as a voluntary benefit. This might often be cheaper than getting it individually outside of your job, because you are buying your coverage through the employer’s insurance broker. Disability insurance rates are often lower from employers as they tend to have various group discounts factored into the cost.

If this is not a possibility at your job, you can also buy disability insurance through professional associations that may offer members coverage at group rates. The option of buying your own individual disability insurance plan is also an option available to you if there are no opportunities to buy it through your work.

If your employer does not offer disability insurance, you should get in touch with an insurance professional to begin and open your own plan. Keep in mind that big sellers of individual insurance offer policies for long-term coverage rather than short term disability insurance. There are some companies that will offer short-term policies as well, it just might take some research to find the company that fits your needs specifically.

Each job will have specific situations that will impact the type of coverage you can get, how much you pay, and the correct amount you need. You should also consider buying an additional policy on your own if you believe your work approved policy will not cover enough.

Employer-sponsored disability plans will only cover a portion, and will likely have a benefits CAP that prevents you from collecting benefits after a certain point.

Supplementing that additional coverage, depending on your salary, may give you an extra amount of cushion. This extra coverage would give you the peace of mind in knowing that should anything happen to you that would prevent you from working, you and your family will have enough insurance money coming in to help you until you are able to return back to work.

How Is The Price Of Disability Insurance Determined?

The factors that can affect the amount of disability insurance you qualify for will vary. People who work in higher risk jobs (like firefighters, mechanics, or anyone who deals with heavy duty machinery) might require higher premiums than those that a paralegal or office manager would pay.

Your age and health will also affect the cost of your insurance. You will end up paying more the older you are. Gender is another factor that will affect the cost of your policy – women are generally more likely to file more claims, so they typically end up paying more in comparison to men.

The average price you will pay annually for disability insurance ranges from 1% to 3% of your annual income, so the more income you have, the more you have to protect, and will likely raise the amount you pay up front. The type of policy you have will also affect how much you will pay in premiums. For example if your policy promises to pay you for a longer period of time than other plans, you will end up paying more for that guarantee of a longer period of potentially collecting benefits.

Disability Insurance: Key Takeaways

  • Short-term disability period: Up to 14 days (after using your accrued sick leave)
  • Long-term disability period: 30-720 days (90 days is about average)
  • Disability insurance helps ensure the needs of you and your dependents are met in the event that you cannot work for a period of time.
  • You can most likely get it through your employer’s benefits package or you can seek out an independent insurance agent. Some states are required to provide at least short-term coverage.
  • Costs and premiums will vary based on a number of factors, such as: annual salary, your age, type of job you perform, and even how big your company is.
  • Disability insurance can be seen by some as a waste of money if they don’t use it, but those that have it when they need it praise it as nothing short of a godsend.