Becoming so ill or injured that you cannot work is more likely than you may think. This could prove detrimental as it would be difficult to pay your usual bills if you are unable to work. With recent inflation, it can be hard to save consistently and add to an emergency fund. In fact, 68% of Americans say they wouldn’t be able to pay for their living expenses for one month if their primary source of income was suddenly lost. However, it’s important for everyone to be ready for such circumstances with short term and long-term disability.
If you experience a disability, whether it is temporary or long term, disability insurance is a crucial safeguard for one of your most valuable assets: your ability to earn an income. This type of insurance provides a financial substitute for a portion of the employee’s income if they become physically incapable of working due to illness or injury. There are two primary categories of disability insurance to consider: short term and long term. These plans offer different forms of coverage that can be utilized together or purchased individually to suit your specific needs.
It’s important to understand the differences between short term disability insurance and long term disability insurance. We will be comparing and contrasting the two so you can gain an understanding of how they work individually, as well as together.
SHORT TERM DISABILITY BENEFITS
Short term disability coverage is for an injury or illness that temporarily puts you out of work for shorter period of time, typically 3-6 months. The benefit period begins when you’ve exhausted all other options, such as paid sick leave. Medical conditions that could qualify for short term disability include surgeries, accidental injuries, and maternity leave. Qualifying events may vary from company to company as each individual situation is unique.
You may have lower monthly premiums compared to long term disability. It’s important to keep in mind that your benefits cover a shorter time period and thus you should expect a shorter payout duration. However, with short term disability, you have a shorter waiting or elimination period, so you receive your benefits sooner. The payout amount depends on how much income you typically receive, as it will be a certain percentage of the paycheck.
LONG TERM DISABILITY BENEFITS
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. Such serious medical conditions include mental illness, cancer, and autoimmune disorders such as lupus. You can start receiving benefits with this type of coverage after your short term disability ends. 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.
The elimination period can range from several weeks to several months, during which the individual may have to bear the financial burden before the disability benefits are received.
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.
Both short term and long term disability insurance aim to replace a portion of your income when you are unable to work due to a covered disability. The primary purpose of both types of coverage is to provide financial support during a period of disability. Additionally, the application process for both short term and long term disability insurance typically involves providing medical documentation, such as physician statements, medical records, and other relevant evidence, to support the claim. Both types of coverage require the individual to demonstrate their inability to work due to a covered condition.
For both policies, you must pay the regular insurance premiums to maintain coverage. Premium pricing can vary on a multitude of factors such as age, occupation, income, and the amount of coverage desired.
It’s important to note that the specific terms and conditions of short term and long term disability insurance policies can vary depending on the insurance provider, policy terms, and local regulations. Be sure to carefully review the terms of your policy to understand the coverage details, including benefit periods, benefit amounts, duration, and eligibility criteria. If you have additional questions about short term or long-term disability, or any other benefit questions, contact us to speak to a consultant. You can also follow us on Twitter or LinkedIn or here on the FBS Blog for more employee health and wellness trends.