Compare Short-Term and Long-Term Disability Insurance Coverage

If you’re young and healthy, dealing with a disability might be the last thing on your mind. However, more than a fourth of today’s 20-year-olds will experience a disabling condition for at least a year before reaching retirement age!

That’s why it’s important to know what disability insurance is, the differences between short-term and long-term disability insurance coverage, and how this coverage can impact your financial security – keep reading to learn more!

What is Disability Insurance?

Also known as disability income insurance, this coverage is designed to replace a portion of your income in case you cannot work due to a severe injury or illness. Disability insurance, on average, can protect about 70% of your income between 3 months to the time you reach retirement age (depending on your policy).

The main difference between short-term and long-term disability insurance is the levels of coverage and the length of the benefit periods – but every policy is different.

What Is Short-Term Disability Insurance?

Short-term disability insurance can replace your income if you cannot work due to a temporary (not long-term) illness or injury. This differs from workers’ compensation since short-term coverage usually covers non-work-related injuries and diseases. On the other hand, workers’ compensation covers injuries that occur in the workplace or on the job.

Coverage duration

While it always depends on the policy, short-term disability coverage usually lasts between three and six months, while some policies can cover you for up to a year (but this is less common). The most likely durations are 13 weeks, 26 weeks, and 52 weeks.

Eligibility requirements

The most common conditions that qualify for short-term disability insurance include:

Injuries that make it difficult for you to perform your job duties, like broken bones, head trauma, and musculoskeletal injuries, which require several weeks of recovery.
Surgeries and the time it takes to rehabilitate – you’ll need time to recover from the procedure before going back to work.
Pregnancy and childbirth, which include the time you’ll need to recover from a complicated or uncomplicated pregnancy.
Serious illnesses that interfere with your work ability, like cancer, arthritis, stroke, or heart attack.
Mental health issues that temporarily prevent you from working – this could be depression, stress, or anxiety.

What doesn’t qualify for short-term disability coverage?

You should know that if an accident or injury happens at work, you will not meet the requirements for short-term disability coverage since workers’ compensation would cover these incidents.

Waiting period

The most typical start day for short-term disability payments is on the eighth day after the accident. However, some policies allow you to receive payments on day 1 for accidents.

Benefit amount

While it will depend on your individual insurance plan, the average benefit amount of short-term coverage is usually between 50% and 80% of your gross salary per week.

How much does short-term disability cost?

You can expect to pay between 1% to 3% per year for short-term coverage. For example, if you make $70,000 per year, you would pay between $700 and $2100 every year.

Pros of short-term disability insurance

Short-term disability insurance can give you quick and easy financial support if you succumb to an illness or injury or are planning to have a baby soon. This type of coverage covers common and short-lived conditions, helping you out if you’re in a pinch!

Cons of short-term disability insurance

Unfortunately, short-term disability policies have a limited coverage period, meaning they don’t usually cover long-term severe health issues. This means that if you suffer from a chronic or long-term illness, you won’t be covered for long, and you’ll need long-term disability coverage.

Do I need short-term disability insurance?

Accidents happen to all of us. Short-term coverage can help you cover your bases in an unexpected emergency while you focus on recovery. Here are a few questions to help you decide if short-term coverage is right for you:

Do I have an emergency fund to cover my living expenses and medical costs if I cannot work for several weeks?
Do I have people depending on me for my income?
Do I have a higher chance of experiencing a short-term disability due to my health history, job, or other factors?
Do I qualify for any government assistance programs if needed?

What Is Long-Term Disability Insurance?

Long-term disability insurance is designed to replace a portion of a person’s income if they are unable to work because of a prolonged injury or illness. If you can’t earn a paycheck over an extended period of time, this coverage can help you take care of your bills and other expenses to maintain the same standard of living you had when you were able to work.

Coverage duration

The average length of coverage for a long-term disability policy will depend on the policy provisions. Still, it usually ranges between a few years or until retirement or a specific age.

Eligibility requirements

To qualify for long-term disability coverage, here’s what you’ll need:

You must have a qualifying medical condition that prevents you from working, like an illness impacting your musculoskeletal, cardiovascular, digestive, nervous, or respiratory systems. It could also be a mental health condition, like depression, anxiety, or PTSD.
Due to your medical condition, you must prove you cannot work. For example, if you have arthritis, you must demonstrate through medical documentation that the condition is ongoing and that it prevents you from working.
You must pay for a long-term disability insurance plan.
You must file a long-term disability insurance claim with your insurance provider.

While it depends on your particular policy, medical conditions like arthritis, carpal tunnel, diabetes, lupus, spinal disorders, cancer, anxiety, heart disease, and many other disorders often qualify for long-term coverage.

What doesn’t long-term disability insurance cover?

Long-term coverage doesn’t include everything. Here are some of the main exceptions:

Injuries due to criminal offenses
Self-inflicted injuries
Pre-existing condition
Loss of income during the elimination period
Loss of income when the benefit period ends
Injuries or illness where you can still perform some of your job
Diseases or injuries where you can still work, even if it’s not the job you had before your disability.

Waiting period

So, what happens when an employee goes on long-term disability? The first thing you’ll encounter is the waiting period, also known as the elimination period. During this time frame, you will enter a waiting period after becoming disabled before you can receive benefits. Usually, this period ranges between 90 and 180 days.

How much does long-term disability cost?

Like short-term coverage, long-term disability coverage is usually around 1% to 3% of your annual salary. For example, if you make $100,000 per year, you’ll pay about $1,000 to $3,000 per year for coverage.

Benefit amount

It depends on your policy, but usually, a long-term disability policy will pay out between 50% and 80% of your gross income – 60% is the most common number.

Pros of long-term disability insurance

The best part of a long-term disability policy is that you’ll have peace of mind – you’ll know that if you ever have a long-lasting or permanent disability, your policy will help you pay for your basic expenses and give you extended financial security in case of an emergency.

Cons of long-term disability insurance

The downside of long-term disability insurance is that you won’t get benefits immediately – you’ll typically have to get through an elimination period of several months before any benefits are paid out.

As you can imagine, long-term coverage can be more expensive than short-term coverage, since the benefits will be paid out over a more extended period of time. However, you can’t put a price on financial protection and peace of mind!

Differences Between Short-Term vs. Long-Term Disability Insurance

To summarize, here are the main differences between short-term and long-term disability coverage:

Coverage Duration: Short-term coverage typically only provides benefits for a few months and in some cases, up to a year. On the other hand, long-term disability insurance is designed to pay benefits for several years.
Benefit Waiting Period: Short-term disability insurance has a much shorter waiting period than long-term coverage. While short-term policies will have you in a waiting period for a few weeks at most, a long-term period can have you waiting to receive benefits for several months.
Cost Differences: Long-term disability insurance is more expensive than short-term coverage, and rightfully so. Because long-term disability policies pay out benefits for several years, it makes sense that it costs more.
Conditions Covered: Short-term disability coverage will cover temporary illnesses, injuries, or maternity leave. In contrast, long-term disability coverage is meant for chronic illnesses and injuries that last several months or years.

How to Combine Short-Term and Long-Term Disability Coverage

At this point, you might be wondering if you can have a short-term disability policy at the same time as a long-term disability policy. The short answer is yes, and it’s even recommended!

If you have a long-term disability policy, chances are that you’ll have to wait several weeks or months during the waiting period to receive benefits. As a result, you might feel financial stress as you don’t have any income or benefits coming in to help pay the bills.

However, if you have a short-term disability plan, this can help you with your financial responsibility as you wait out the elimination period for your long-term coverage.

How Do I Get Disability Coverage?

Many employers offer a no-cost or low-cost disability coverage option for their employees, so it’s a good idea to check with your employer to see what options are available.

If you are self-employed or your employer doesn’t have disability coverage, you can purchase an individual disability insurance policy. Even some employees who already have disability coverage purchase an additional individual policy to make sure their coverage is more thorough.

Employer-Sponsored Plans vs. Private Insurance

When it comes to long-term and short-term disability insurance, you have two options – employee-sponsored or individually purchased. Knowing the difference between these options is important when it comes to cost, benefits, tax implications, and more.

What to know about employer-sponsored disability insurance:

These policies generally offer a one-size-fits-all approach to disability coverage.
Employer-sponsored disability insurance must follow the guidelines of federal legislation known as the Employee Retirement Income Security Act of 1974 (ERISA). This law sets rules and standards for insurance carriers.
Employee plans are generally much more affordable than private insurance.
Unfortunately, if you leave your job, you will lose your disability coverage.
Monthly benefits from employer-sponsored policies are taxable.

What to know about private disability insurance:

Private policies usually have more extensive benefits and better consumer safeguards than employee plans.
Private insurance allows you to pay for the coverage you want or need while excluding the rest, giving you more flexibility.
Typically, you’ll get a higher percentage of your working income replaced with an individually purchased policy, giving you more peace of mind. However, because of this, the premiums are usually more expensive.
Elimination periods are usually shorter with private insurance, so you won’t have to wait nearly as long to receive benefits.
Individually purchased policies are governed at the state level, so this coverage does not have to follow ERISA guidelines.
Payments from private insurance plans usually don’t create an income tax liability.

Short-Term vs Long-Term Disability Coverage: Which One Should You Choose?

Both long-term and short-term disability coverage are important for your financial well-being and peace of mind – so which one should you have? In most cases, the answer is both!

Short-term coverage will help you in the case of a temporary illness or injury, while long-term policies will cover you in the case of a chronic illness or permanent injury. Because of the long-term policy’s elimination period, in which you’ll wait for benefits for several months, your short-term insurance can help fill in the gaps in the meantime.

Understanding both types of disability coverage can help you make the best decision for you and your family. If you want to learn more about the different types of disability coverage or want to find a plan that works for you, contact us today!

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