Short-term disability insurance is financial protection against the loss of your income, but benefits last just a number of months.
Disability insurance protects you from the financial burden of losing your income if you become so disabled or ill that you can’t work. It is meant to replace your income with monthly benefits payments that cover about 60%-80% of your pre-tax salary, meaning that they almost entirely match your take-home pay.
The time during which you receive benefits is called a benefit period. Long-term disability insurance and short-term disability insurance are categorized by the length of their benefit period. Long-term disability insurance lasts for years, and possibly until you retire. Short-term disability insurance lasts just a number of months.
One of the major differences between short-term disability insurance and long-term disability insurance is that you almost always get the former from your employer. It’s possible to purchase short-term disability insurance on your own, but it may be difficult and prohibitively expensive to do so.
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Disability insurance, whether short-term or long-term, pays out benefits to you each month you’re disabled and can’t work, similar to receiving a paycheck from your employer. If you pay your premiums yourself, these benefits are tax-free, but if your employer pays any percentage of them you’ll have to pay taxes on the equivalent percentage in benefits.
The chief difference between short-term and long-term disability insurance is that short-term disability insurance typically only pays out benefits for under a year, while long-term disability insurance may pay benefits much longer. Both policies cease paying benefits when you recover from your disability and can return to work.
The short-term disability benefit period typically lasts just 26 weeks, although some coverage may last an entire year. During that time, you’ll receive approximately 80% of your pre-tax salary (roughly equivalent to your after-tax salary) as long as you remain out of commission. That compares favorably with long-term disability insurance, which typically pays about 60% of your pre-tax salary.
While you may be offered long-term disability insurance or short-term disability insurance as part of your employer’s benefits package, you usually can’t get short-term disability insurance independently because it’s simply not offered very often as a standalone product from insurance carriers. Even if you could get it, you may want to get long-term disability insurance anyway: It’s not much more expensive than short-term disability insurance, and if your disability is so severe that your income becomes threatened, there’s a good chance it could last longer than the short-term benefit period.
However, short-term disability insurance offered by your employer may actually be considerably cheaper, even free.
If you do become disabled, short-term disability benefits kick in a lot sooner than those from long-term disability insurance. That’s because disability insurance in general usually mandates a waiting period (also called an elimination period) between the time you become disabled and the day you start receiving benefits. With short-term disability insurance, the waiting period is usually no more than 14 days, but with long-term disability insurance the average waiting period is about three months.
If you don’t think your savings can last you the entire elimination period, you may consider short-term disability insurance a better bet than long-term disability insurance. A lot of expenses may need to be covered during the waiting period, and short-term disability insurance can get you over the hump.
To claim disability insurance benefits, you need to prove that you were injured. But long-term disability insurance covers a wider range of disabilities than short-term disability insurance in that the latter doesn’t include any injury that can be covered by workers’ compensation. Both types of disability insurance should cover chronic problems like back pain and heart disease as well as injuries incurred off the job.
Short-term disability rates are determined first and foremost by the amount of coverage you need, meaning the amount of income you’ll have to replace should you become disabled or ill and can’t work. Your premiums take into account your medical history and the various options you need for your coverage, such as how long as you want the elimination period to be – the shorter the wait, the more expensive your premiums. Your rates may also differ based on your age, gender, and occupation.
Unlike life insurance and health insurance, which may cost extra if you have pre-existing conditions, disability insurance (whether short-term or long-term) often excludes these conditions from coverage altogether. For long-term disability insurance, you should expect to pay between 1% and 3% of your salary for coverage. Because short-term disability insurance is rarely sold in the individual market, no such rule-of-thumb exists, but you’ll probably have to pay a similar amount. These rates may be considerably cheaper if you get it from a group disability insurance plan (i.e., through your employer).
Many people receive short-term disability insurance through their employer. This is often included as part of a benefits package, and sometimes it’s even offered for free – you’ll be automatically enrolled when you sign up for your employee benefits.
You can also get free quotes for short-term disability rates from Policygenius’ partner LifePreserve, although short-term disability coverage you purchase independently may have relatively tiny amounts of coverage and may not be covered in your state. If you don’t get disability insurance through your employer, you’re going to want long-term disability coverage, which you can get directly from us.
Some states require employers to provide short-term disability insurance. Those states are California, Hawaii, New Jersey, New York, and Rhode Island, as well as Puerto Rico.
To claim short-term disability benefits, you need to file a claim with the insurance company or through your employer.
Short-term disability insurance allows you to buy yourself some time to recover from an illness or injury. But it may be too expensive for the average person to afford, and the benefit period may be too short to completely cover the disability.
If you receive group disability insurance, you may want to use it as a complement to long-term disability insurance. Employer-sponsored short-term disability insurance won’t pay out benefits if you sustain the injury while at work (for which you have to claim workers’ compensation), but long-term disability insurance does cover such disabilities.
Short-term disability insurance may be worth it if you’re concerned about the elimination period. It can provide you with benefits while you wait for the long-term disability insurance benefits to kick in.
If your employer pays the premiums for your short-term coverage, we recommend taking the group policy offered by your employer and using the savings to start an emergency fund, save for retirement, or pay for a long-term disability policy that better aligns with your needs. You’ll help protect yourself from gaps in disability insurance coverage.
If the employer-sponsored policy isn’t a freebie, however, you should make sure that the coverage is adequate for your needs before you choose to purchase it. If you need more coverage, consider opting out of a group plan that requires you to pay your own premiums. Although it may be cheaper to buy into a group disability policy, you may not get as much bang for your buck as you’d get from coverage purchased privately.
Zack Sigel is a SEO managing editor at Policygenius. He covers personal finance, comprising mortgages, investing, deposit accounts, and more. His previous work included writing about film and music.