Private Short-Term Disability Insurance: What You Need to Know

If you are self-employed or don’t have disability insurance through your employer, you may be a good candidate for individual short-term disability insurance. This type of coverage can protect your income if you ever have a temporary disability that impacts your ability to work.

Keep reading to learn more about the maximum disability amount you can receive, who qualifies for this coverage, and everything else you need to know about private short-term disability insurance.

What is Private Short-Term Disability Insurance?

Short-term disability (STD) insurance will help protect your income and finances by paying a portion of your monthly income if you cannot work due to a temporary illness or disability. Typically, this coverage is offered through your workplace – businesses can purchase this insurance with a group rate.

However, not every business offers this coverage, and many people are self-employed. In these scenarios, you can purchase private short-term disability insurance. In other words, private short-term disability insurance is when you purchase short-term disability coverage as an individual and not through your employer.

Who Needs Individual Short-Term Disability Insurance?

Medical bills and job losses are two of the most common reasons for filing for bankruptcy. If you’re experiencing an unforeseen injury or illness and are unable to work, you would need to have enough money in your savings account to cover your basic expenses and medical bills until you can return to work.

If you’re someone who doesn’t have an emergency fund, short-term disability insurance can provide a financial cushion in case you are unable to work – this will help you to stay on top of your medical bills and living expenses until you get back on your feet.

How Does Private Short-Term Disability Insurance Work?

If you experience a temporary illness or injury and have a short-term disability policy, you’ll need to first file a claim with your insurance company. To file a claim, you’ll need to see a doctor to get the necessary paperwork and documentation – this documentation should be detailed and thorough. The more information you can provide, the better your chances of receiving the benefits you need.

After filing a claim, you will likely start receiving payments within one or two weeks. It will depend on your particular policy, but short-term disability usually pays between 50% to 80% of your gross monthly salary and can last up to 26 weeks. You will continue to receive benefits until you return to work or the benefit period ends.

Elements of a Private Short-Term Disability Policy

There are five elements that every disability policy has – here they are:

Premium: This is the monthly or yearly amount you (or your employer) will pay for coverage.
Benefit: This is the portion of your income the insurance company will pay out if you cannot work. Usually, this will be between 50% and 80% of your monthly salary.
Benefit period: This is the time period you can receive benefits. For a short-term policy, this ranges between 90 and 180 days, on average.
Waiting period: This is the amount of time you will have to wait before receiving benefits – in the case of a short-term disability, the waiting period is typically around 2 weeks.
Definition of a disability: Every insurance policy will need to define what a disability actually is so that claimants can know if their injury is covered under the policy and if they can receive benefits.

How to Choose a Private Short-Term Disability Policy

There are several factors to think about when choosing private short-term coverage. Here’s what you should consider:

Benefit amount: Take a look at the amount of benefits you could receive during the benefit period. While a higher amount means that it will be more expensive, you’ll want the majority of your income covered when you are unable to work.
Benefit period: Consider whether you would receive benefits for a few or several months.
Policy provisions: Check if the insurance company can change the premiums or policy terms – this could be a huge hassle.
Coverage: What will be covered in your policy? You should make sure that pregnancy is covered, as this is one of the most common reasons for short-term disability insurance.
Reviews: Check the insurance company’s reviews to see if other customers have had a good experience with their services.
Getting coverage: When you are shopping for policies, check and see how easy it is to get coverage from each insurance company. Some are more difficult than others, requiring extensive medical documentation.

Maximum Short-Term Disability Coverage

Your maximum short-term disability coverage will depend on your policy details. While most short-term policies will last three to six months, the maximum amount could be up to a year, paying between 70% and 80% of your salary.

If you need longer coverage for over a year, you should consider getting a long-term disability (LTD) policy, which could cover your income losses all the way until retirement.

So, how much coverage will you need? This will depend on your financial situation, health, and other lifestyle factors. Here are some questions you can ask yourself to determine how much short-term or long-term coverage you might need:

How many months of living expenses could you afford if you could not work?
Do other people depend on you for your income?
Do I have more of a chance of getting a short-term disability due to my health, hobbies, occupation, or lifestyle?

Benefits of Choosing Private Short-Term Disability Insurance

While private short-term is generally more expensive than employer-sponsored policies, there are several benefits with this kind of coverage. Here are a few of the main advantages:

Private short-term coverage offers more flexibility compared to group policies – you’ll have more control over the amount of coverage, elimination period, and benefit period.
You’ll retain coverage if you switch jobs. With employer plans, you’ll lose the benefits when you lose or leave your job.
Private short-term coverage offers more customizable terms tailored to your individual needs.

Private vs. Employer-Sponsored Short-Term Disability Insurance

There are a few key differences between private and employer-sponsored short-term plans. The main difference is that with private insurance, you are paying for it on your own. With an employer, it is typically included in your benefits package or is offered for a much lower rate than standard private insurance.

As a result, employer-sponsored STDs are less expensive than private insurance. However, you won’t have many options or flexibility in terms of coverage through your employer – usually, it’s a one-size-fits-all with a group rate. On the other hand, while private insurance is more expensive, you can customize it to fit what you really need, making it much more flexible.

For people who don’t have good employer-sponsored STD coverage, it’s not uncommon to purchase a private policy to supplement your coverage. For example, let’s say your STD policy through your employer only covers 50% of your income in case of an accident. If you can’t afford to lose half of your income for a few months, getting a private policy that covers the other 50% of your lost income is a good idea.

If you don’t have STD coverage through your job, if you have weak coverage, or if you are self-employed, a private short-term disability insurance policy can offer financial protection in case of an unexpected emergency that prevents you from working.

Common Myths and Misconceptions

When it comes to short-term disability coverage, there are several misconceptions – here are some of the most common myths.

Myth #1: Pregnancy doesn’t count as a disability.

Fact: Pregnancy does count as a disability, but there may be some requirements. Just like other disabilities, pregnancy may be subject to a time limit for a preexisting condition.

Those who are pregnant will need to prove that they cannot do their job, are under the care of a doctor, and are not working for money during the time of their disability. In other words, pregnancy is treated just like any other illness or injury.

Myth #2: Disabilities are always long-term.

Fact: Disabilities are not always long-term or chronic illnesses. Many disabling conditions, like spinal issues or heart disease, can be remedied with surgery, physical therapy, or lifestyle changes. This means that after a few weeks or months of treatment, many disabled people can return to their regular routine.

Myth #3: Only older people need to worry about disabilities.

Fact: While older people are more likely to experience a debilitating condition that prevents them from working, accidents and emergencies happen during all walks of life. In fact, out of all working generations, Millennials worry the most about supporting themselves and their families if they experience a disability and are unable to work. This is likely because they have more responsibility than other generations, with young children, student loans, and housing payments.

Myth #4: You must be completely disabled to get disability benefits.

Fact: Some disability policies include partial disability benefits – this will pay the claimant if they are under a doctor’s care, received total disability prior, and can now only work part-time.

For example, let’s say that Sally had a serious neck injury while biking, and she filed for a short-term disability claim. She was away from work for a month, and can now work 3 to 4 hours a day, but must go to daily rehabilitation and have rest periods each day. In this scenario, Sally is eligible for partial disability benefits because she can only work part-time.

While Sally was out of work on partial disability, she received 100% of her monthly benefit. Now, as she works part-time, she is receiving 50% of her monthly benefit, helping her transition back to work gradually.

How to Choose the Best Short-Term Disability Insurance Policy

Before purchasing a private short-term disability policy, check with your employer to see if you already have coverage. If you don’t have coverage, you should consider shopping for a policy covering most of your income for at least a few months.

If you already have existing coverage, check to see how much of your income would be covered in the case of a temporary disability. For example, if you have 60% coverage, you should add on a private policy that would cover the other 40% of your income.

Be sure to consider the cost of the monthly premium and verify that it aligns with your current financial situation. Examine different policies and compare the monthly payment, the coverage you’ll receive, and how long you’ll have to wait for benefits. Ideally, you should have enough savings to cover the waiting period before receiving disability benefits.

If you have a long-term policy, your short-term policy should ideally cover the LTD elimination period. For example, if your LTD waiting period is three months, then your STD policy should cover those three months – that way, you won’t drain your savings while waiting for long-term benefits to kick in.

How to Get Private Short-Term Disability Insurance

If your employer doesn’t offer any kind of short-term disability insurance, you can purchase a plan through a broker, agent, or third-party provider. You should be aware that costs for a private plan are generally higher, but you’ll have more control over your coverage.

Acceptance for short-term coverage is not always automatic. The underwriting process, also known as the risk evaluation process, is stricter – the insurance company will want to know your age, health conditions, and other lifestyle factors before they issue a policy. If you are currently pregnant, pregnancy will be considered a preexisting condition, which could limit your ability to get coverage.

Final thoughts

Private short-term disability insurance is an excellent option for people who are self-employed, don’t have coverage through their employer, or simply want to add additional coverage.

If you have dependents, don’t have a large emergency fund, or just want peace of mind, short-term disability coverage may be a good option. However, you’ll want to carefully examine your financial situation and lifestyle to determine if private short-term coverage is worth it.