Introduction
Life is full of surprises, and a sickness or accident can hit you at any moment, rendering you unable to work and bring home an income. If you’re the main breadwinner for your household or just want to protect your future finances, disability insurance is a vital safety net. But when selecting a policy, you’ll probably find two primary choices: Short-Term Disability Insurance (STDI) and Long-Term Disability Insurance (LTDI).
Both forms of insurance accomplish the same basic goal—offering financial support when you cannot work—but they vary considerably in duration, waiting periods, expense, and benefits. Knowing the main distinctions between short-term and long-term disability insurance will enable you to make the correct choice depending on your financial position, type of job, and individual requirements.
What Is Short-Term Disability Insurance?
Short-Term Disability Insurance is meant to offer temporary income replacement in case you are unable to work because of an illness, injury, or medical condition. Short-Term Disability Insurance usually covers a few weeks to a year, so you have money coming in while you recover.
How Does Short-Term Disability Insurance Work?
When you are temporarily disabled—like you are recovering from surgery, suffering from a critical illness, or you’ve been involved in an accident that renders you incapable of carrying out your work—short-term disability insurance comes into play. The policy pays you a fraction of your income (typically 60%-70%) to assist you in paying for basic necessities such as rent, food, and medical expenses.
Key Features of Short-Term Disability Insurance:
Duration of Coverage: Usually stays in effect from a few weeks to six months, but some policies can go as long as a year.
Waiting Period: Waiting period (duration between the start of the disability and when you begin receiving the benefits) is short, typically from a few days to two weeks.
Amount of Benefit: Typically pays 60%-70% of your income before becoming disabled.
Common Use Cases:
- Recovery from minor surgeries
- Pregnancy and childbirth complications
- Short-term illnesses like pneumonia or severe flu
- Accidents leading to temporary disability
Pros and Cons of Short-Term Disability Insurance
Pros:
- Quick access to benefits with a short waiting period
- Covers temporary illnesses and injuries
- Ideal for people without significant savings
Cons:
- Limited coverage duration
- Lower payouts compared to long-term disability insurance
- May not be sufficient for severe disabilities
Short-term disability insurance is a great option for individuals who do not have a large emergency fund and need immediate financial support during a short-term medical leave.
What Is Long-Term Disability Insurance?
Long-Term Disability Insurance pays benefits for those who are victims of serious injuries or chronic diseases that render them incapable of working for a long time—at times even permanently.
How Does Long-Term Disability Insurance Work?
If you have a serious illness, injury, or medical condition that lasts for months or years, long-term disability insurance offers income replacement. Unlike short-term policies, LTDI benefits usually begin after three to six months and may last for years or even up to retirement, depending on the policy.
Key Features of Long-Term Disability Insurance:
Duration of Coverage: A few years or even up to retirement, subject to policy conditions.
Waiting Period: Typically 90 to 180 days until benefits are paid.
Amount of Benefit: Pays 50%-70% of your pre-disability earnings, subject to policy.
Typical Use Cases:
- Cancer or other chronic diseases
- Severe accidents leading to permanent disability
- Neurological diseases such as multiple sclerosis
- Serious mental health issues excluding work
Advantages and Disadvantages of Long-Term Disability Insurance
Advantages:
- Offers economic security for permanent or long-term disabilities
- Pays for considerable medical bills and cost of living
- Can go on for many years until retirement, bringing about peace of mind
Disadvantages:
- Longer wait time until benefits begin
- More premium than short-term disability insurance
- Needs excellent financial planning to cover the waiting period
Long-term disability insurance is best for professionals, entrepreneurs, and individuals with dependents who require long-term income protection in the event of a long-term disability.
Differences Between Short-Term and Long-Term Disability Insurance
| Feature | Short-Term Disability Insurance (STDI) | Long-Term Disability Insurance (LTDI) |
|---|---|---|
| Coverage Duration | A few weeks to a year | Several years or until retirement |
| Waiting Period | A few days to two weeks | 3 to 6 months (90-180 days) |
| Benefit Amount | 60%-70% of income | 50%-70% of income |
| Best for | Temporary disabilities (injuries, pregnancy, minor illnesses) | Long-term disabilities (cancer, paralysis, chronic diseases) |
| Cost | Lower premiums | Higher premiums |
Which One Should You Choose?
The appropriate disability insurance for you relies on several factors, such as your financial status, type of job, health status, and long-term planning. Here’s how to decide which policy is best for you:
Select Short-Term Disability Insurance If:
You require instant money for short-term health issues.
You do not have large savings to support a short-term loss of income.
Your company provides short-term disability insurance at minimal or no cost.
You’re preparing for maternity leave and desire financial protection.
Select Long-Term Disability Insurance If:
You have dependents who depend on your income.
You desire a long-term safety net in the event of a serious or permanent disability.
You have a high-risk occupation (construction, police work, etc.).
You are the only breadwinner in your family and must have financial security.
Can You Have Both Short-Term and Long-Term Disability Insurance?
Yes! Some people buy both types of insurance to have full coverage. You benefit from having short-term disability insurance as it bridges the gap before long-term disability insurance comes into effect. In this manner, you get constant income protection as soon as you are disabled and until you heal or move over to long-term coverage.
Employer-Provided vs. Individual Disability Insurance
- Short-term disability insurance is usually provided by many employers as part of their benefits package.
- Long-term disability insurance may be provided by employers, but it is advisable to buy an individual policy for greater coverage and flexibility.
How to Get Disability Insurance?
If you’ve decided that disability insurance is right for you, the next step is understanding how to obtain coverage. There are several ways to get short-term and long-term disability insurance, each with its own advantages and considerations.
1. Employer-Sponsored Disability Insurance
Most employers provide disability insurance as part of their benefits. Some employers give short-term disability insurance (STDI) at no cost, while others give long-term disability insurance (LTDI) at a discounted group rate.
Advantages:
No or reduced cost to employees
Simple to sign up for during open enrollment
Payroll deductions make it easy to pay
Disadvantages:
Few options to customize the policy
Coverage lapses if you quit the company
Employer-sponsored policies might not cover all sources of income
2. Individual Disability Insurance
If your company does not provide disability insurance or you need extra coverage, you can buy a private disability insurance policy. This provides more flexibility and long-term protection, particularly if you are self-employed.
Pros:
Fully customizable coverage options
Stays with you even if you switch jobs
May cover a larger percentage of your earnings
Disadvantages:
More expensive premiums than for employer-sponsored coverage
Involves medical underwriting (your medical history and health impact prices)
3. Government Programs for Disability Coverage
Certain government programs offer disability benefits, but they have strict qualifications and tend to not substitute full income.
Social Security Disability Insurance (SSDI) – For those who have worked and paid Social Security taxes, but eligibility is strict, and approval is slow.
Supplemental Security Income (SSI) – For low-income people with disabilities, but payments tend to be small.
State Disability Insurance (SDI) – A few states, such as California, New York, and New Jersey, provide temporary disability benefits.
Advantages:
No charges to those who qualify
Offers some financial help
Disadvantages:
Limited benefits (usually below 50% of your pay)
Lengthy waiting periods for approval
Steady eligibility requirements
How Much Does Disability Insurance Cost?
The price of disability insurance differs based on a number of factors, such as:
Age – Younger people pay less.
Health Status – Existing medical conditions may drive up costs.
Occupation – Riskier occupations (e.g., construction, police work) are more expensive.
Income Level – Policies that replace a greater percentage of income are more expensive.
Coverage Term – Long-term disability coverage is pricier than short-term.
Typical Cost Estimates:
- Short-Term Disability Insurance: 1%-3% of yearly income
- Long-Term Disability Insurance: 1%-4% of yearly income
As an example, if you have $50,000 of yearly income, you can anticipate paying $500 to $2,000 a year for disability insurance, depending on the policy.
Common Disability Insurance Myths
Several individuals downplay the value of disability insurance because of common myths. Let’s dispel some myths:
Myth 1: “I’m young and healthy, so I don’t need disability insurance.”
Reality: Mishaps and illnesses may occur at any age. In fact, 1 in 4 workers will suffer a disability before retirement.
Myth 2: “Workers’ Compensation will pay for me.”
Reality: Workers’ compensation only pays for on-the-job injuries, but most disabilities (illnesses, chronic conditions, off-work injuries) occur outside of the workplace.
Myth 3: “I have enough savings to last a disability.”
Reality: The typical long-term disability lasts 34.6 months. Few have three years’ worth of savings to replace lost income.
Myth 4: “Social Security Disability Insurance (SSDI) is sufficient.”
Reality: SSDI approval rates are low, and the average monthly benefit is approximately $1,400, which can be insufficient to pay for living costs.
