Short-term disability vs long-term disability insurance

Short-term and long-term disability insurance have a few key differences in how they protect your income.

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Amanda ShihEditor & Licensed Life Insurance ExpertAmanda Shih is a licensed life, disability, and health insurance expert and a former editor at Policygenius, where she covered life insurance and disability insurance. Her expertise has appeared in Slate, Lifehacker, Little Spoon, and J.D. Power.

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Disability insurance is a must-have part of your financial safety net. It protects your income when you’re unable to work due to illness or injury and is easier to qualify for than workers’ compensation or government benefits programs for protection.

Long-term disability insurance is a better option than short-term disability insurance because it is more cost-effective and offers more robust coverage.

Short-term disability insuranceLong-term disability insurance
Benefit period3-6 months2, 5, 10 years, or until retirement
Elimination periodLess than 14 days30-720 days; Recommended 90 days
Coverage amountUp to 80% gross monthly incomeUp to 60% gross monthly income
Average cost1-3% of annual salary1-3% of annual salary
Where to buyTypically employer-sponsoredPrivate policies available from carriers; employer-sponsored

How long do disability benefits last?

The amount of time someone can receive disability benefits is called the benefit period, and a natural place to start comparing short- and long-term disability policies is how long they last. Going by their names it’s obvious that one lasts longer than the other, but what exactly do “short-term” and “long-term” mean?

Short-term disability benefits typically last between three to six months. Long-term benefits are measured in years; you can apply for a benefit period that lasts two, five, or 10 years, or until retirement age.

Broadly speaking, the shorter the benefit period, the cheaper the disability policy. But because the average disability lasts around three years, short-term disability insurance isn’t adequate for most people. At best, short-term disability insurance should supplement long-term disability insurance, the former providing income protection until the latter kicks in.

When do disability benefits start?

How long it takes for disability benefits to begin depends on the elimination period.

The elimination period for short-term disability insurance is usually under 14 days. Long-term policy elimination periods range from 30 days to two years, but the most common is 90 days. The longer the elimination period — the longer you can go without accessing your policy benefits — the cheaper the policy.

As mentioned previously, this is a good example of how short-term disability insurance can complement long-term insurance. Between short-term insurance and liquid savings, you can increase the elimination period of your long-term policy and lower the cost significantly.

→ Learn more about disability insurance elimination periods

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How much coverage short- and long-term disability insurance provide

You won’t match 100% of your salary with either short-term or long-term disability insurance. That would be prohibitively expensive. But you can come close. Short-term disability will usually provide around 80% income replacement, while long-term benefits are usually around 60% income replacement.

However, this is compared to your actual take-home pay. Disability benefits are not taxed in most cases, so your benefits will be pretty close to what you were bringing home.

Lowering the disability coverage amount can also lower the cost of the policy, but be realistic about how much replacement income you need. You may save money on your premiums with a lesser benefit amount, but if you skimp on coverage you run the risk of not having enough money when you’re unable to work.

Short- and long-term disability insurance cost

In general, you can expect to pay 1% to 3% of your annual salary for a disability policy. However, consider how much more protection you get with long-term disability insurance; it lasts far longer than short-term insurance, and for that reason it’s much more cost-effective.

That’s also why, as we’ll discuss below, most people have subsidized short-term disability policies through their employer rather than buying a private policy. It can be expensive to pay for a short- and long-term policy, and getting an employer-sponsored short-term policy is the most financially responsible course of action.

→ Learn more about disability insurance costs

Where to buy disability insurance

Long-term disability and short-term disability insurance are both popular employee benefits. Employer-sponsored disability insurance is often subsidized and if you’re able to get either for free through your employer, it’s worth it. For many people this is the only way to get short-term disability; few carriers offer private short-term insurance and, as mentioned, it’s not the most cost-effective option.

On the other hand, you shouldn’t have any problem finding an insurance company to buy long-term disability insurance from, and if you can only afford one, it’s usually the better option.