It’s not a fun hypothetical to think about, but the prospect of becoming ill or injured is a very real possibility that everyone should be prepared for, whether it happens or not. 68% of adult Americans have NO savings in place for emergencies.* Should you become disabled, temporarily or long term, disability insurance protects one of your most valuable assets– your ability to earn a living. This insurance replaces a portion of your income in the event that you become physically unable to work due to sickness or injury. There are two primary types of disability insurance: short term and long term. These plans are designed to offer different types of coverage that can be used in conjunction with one another, or they can be purchased individually.
Short Term Disability
As it states in the name, short term disability insurance covers a shorter period of time. It varies from plan to plan, but generally speaking, your short term disability coverage will cover the first few weeks or months that you’re unable to work. It only kicks in after you’ve exhausted all other options, like paid sick leave. You may have lower monthly premiums compared to long term disability. However, your benefits cover a shorter time period and thus expect a shorter payout duration. With short term disability, you have a shorter waiting period, meaning you receive your benefits sooner.
Long Term Disability
Long term disability insurance covers a longer period of time that you’re unable to work. It’s more typical with catastrophic illness or injury that could end your ability to earn any income in the future. This type of coverage can pick up where your short term disability ended. You may pay higher monthly premiums for this insurance, but the payout duration is longer. Since your benefits cover a longer time span, you also have a longer waiting period before you receive your benefits.
If you’re purchasing both short term and long term disability insurance, it’s important to plan them so that your long term coverage will begin as soon as your short term coverage ends, minimizing the time in between when you’re not covered. If possible, you should have your short term policy match the length of the long term waiting period, so there is no gap in coverage.
*U.S. Federal Reserve Board, Survey of Consumer Finances, 2010