Short Term vs. Long Term Disability Insurance
If you were injured tomorrow—say, from a car accident or falling down the stairs—could you afford not to work? From temporary disabilities to chronic illness, short- and long-term disability insurance can offer crucial financial assistance amidst an emergency or life-altering change.
But what's the difference between the two, and when should you expect to need one over the other? We've broken down the differences below.
Short-Term Vs. Long-Term
Just as it sounds, the primary difference between short-term and long-term disability is the time frame. Short-term disability has a waiting period of 0 to 14 days and may continue for a maximum of two years. Long-term disability has a longer waiting period—which could mean weeks or months without pay—but could provide income until you retire.1
It's important to understand the coverage and price differences of these policies as well as how the payouts work.
How Does Short-Term Disability Work?
In the event you become disabled, short-term disability will typically kick in faster than long-term disability.
This type of insurance covers common events including:
- Injuries (such as a broken arm or leg)
- Surgery to repair a knee joint that incapacitates you for a few weeks
- Maternity leave for new mothers
How Does Long-Term Disability Work?
Long-term disability typically begins to pay after a substantial waiting period, usually 90 days to a year. This type of insurance is meant to cover injuries or events with a longer recovery horizon. Depending on the extent of your injury, you could collect long-term disability benefits for anywhere from two years until retirement.2
Common reasons people receive payouts under long-term disability include:
- Joint or back pain and muscular disorders
- Serious illnesses such as heart disease, cancer, or a stroke
- Mental illness
Utilizing Both Types of Insurance
Many people try to save money by choosing one type of insurance or the other. However, it is possible to incorporate both short-term and long-term disability insurance into your protection strategy if you're looking for fuller coverage.
Some employers offer short- and long-term disability as part of their benefits packages. In many cases, short-term disability covers you until you become eligible for long-term disability. You often have several options, based on premium and payout, with higher premiums corresponding to higher payouts. Leaving a gap between these two coverages can drain your savings or cause you to take on debt.
If your employer offers one or both options, consider the best way to utilize your benefits. Then, talk to an experienced insurance agent or financial professional regarding how a private policy could help you fill in the gaps.
Typical Premiums and Payouts
Disability coverage varies depending on the insurance company and a number of other factors. It's important to fully understand what you get for the premium you choose—as well as what you give up by selecting a lower premium.
Short-term disability may cover up to 80 percent of lost income, and long-term policies often cover about 60 percent of lost income. You can consider all the options presented under your policy to get the maximum coverage you can afford. A knowledgeable advisor can make this process a lot less confusing.3
Factors Impacting Your Premium
The primary influencers of your premium amount include the benefit period, coverage amount, and waiting period before coverage goes into effect. Other factors that determine your premium include:
- Add-on features
You may want to budget one to three percent of your annual salary if you want to obtain moderate disability coverage. If layering both coverages is not an option, consider the factors that make long-term disability attractive, such as longevity, and the factors that make short-term disability attractive, such as higher coverage and a shorter wait. Use the information provided by your research and trusted advisors to make a decision that works for your family.
Determine how much, if any, short-term and long-term insurance your employer may offer. Then, supplement any gaps in coverage with private coverage as needed. Layering short-term and long-term disability can help you maintain your lifestyle while you heal.
Seeking out an insurance professional who can explain the policy options available may be beneficial for making the right decision. If you are married, discuss how the various options could impact your family before making a final decision.
1. III.org, 2022
2. Investopedia.com, May 30, 2021
3. Investopedia.com, May 30, 2021