Both short- and long-term disability insurance are designed to protect a portion of your income if you’re in a situation where you can’t work because of an illness or injury. These types of policies are typically associated with your job, or perhaps your membership in an organization.
However, there are differences between short- and long-term disability claims and coverage, which are explored below.
The Basics of Short-Term Disability Insurance
Short-term disability insurance or STDI is something that you may first hear about when you get a new job, or you’re signing up for employee benefits.
You may at the time think it’s not something relevant to you, but in reality, an estimated 1 in 4 workers will experience a disability period sometime before they retire. Additionally, around 46% of Americans wouldn’t be able to cover a $400 ER expense without a family loan or the use of a credit card.
These situations raise the question of how you would pay if you were to be out of work because of a brief medical illness.
Short-term disability insurance replaces your income and the benefit period is usually three to six months.
As far as what a disability refers to—it can be any medical situation or condition preventing you from working.
Short-term disability insurance doesn’t just cover workplace accidents.
Instead, the majority of disabilities are linked to chronic illnesses and conditions such as cancer or back injuries. Sometimes pregnancy can be classified as a disability as well.
Most STDI plans will cover up to 80% of your gross income. Gross income is your total pay before deductions like taxes.
What Is Long-Term Disability Insurance?
Long-term disability insurance or LTDI has the same overall goal as short-term disability insurance. The main differences in STDI and LTDI are the time when they’ll kick in and how long coverage lasts.
With LTDI, your insurance will usually only kick in after what’s called an elimination period, which is a waiting period.
Typically, the elimination period is 90 days. With some policies, it can be 180 or 360 days.
While short-term disability insurance will usually last for three to six months, LTDI can last for years.
Your long-term disability insurance policy will often use years to describe coverage. For example, you may see benefit periods of 10 or 20 years, or sometimes even until you reach retirement age.
While LTDI provides coverage for a longer period than STDI, it usually only pays benefits that cover 40 to 70% of your income.
Some of the events that may be covered under LTD include cancer, heart attack, mental disorders, or accidental injuries.
Costs
The primary differences between STDI and LTDI are the benefit period and the elimination period. Another difference is the coverage amount.
The costs also vary.
Some of the factors affecting the cost are your age and health, your location, your occupation, and any extra features you opt for.
Buying Disability Insurance
Most people have short-term disability policies that are subsidized through their employers instead of going out and buying their own private policy. It can be costly to pay for both your short- and long-term disability coverage, and an employer-sponsored short-term policy is going to save you money over the alternative.
Some employers may also subsidize long-term disability policies as part of their employee benefits package.
In some cases, an employer-sponsored policy is the only way to get short-term coverage, because there aren’t many carriers that offer it privately.
Finding private long-term coverage tends to be easier, and in this situation, private may be better if you can afford the costs.
If you have either a short or long-term disability policy through your employer, it’s tied to your job. If you leave your job for any reason, you then either lose that coverage, or you may have the option to pay for it.
It can be a good idea to make sure you have both short- and long-term disability insurance unless you have a substantial amount of cash saved up that would cover your living expenses for at least six months. In that case, you might just want the LTDI.
If you don’t have savings set aside, having short-term coverage will mean that you have your living expenses covered while you wait for long-term disability insurance to kick in, if necessary, in your situation. Speak to your employer if you aren’t sure what options are available to you, and the benefits administrator will be able to help you.
