What is temporary disability insurance?

Temporary disability insurance is offered by your employer for relatively short periods of disability as mandated by certain states.

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If you’re only disabled for a short time, some states offer temporary disability insurance (TDI) that is free. Temporary disability insurance isn’t meant to replace your income and only covers disabling conditions that occurred outside of work. As a government-sponsored or administrated social benefits program, it functions as the cousin to workers’ compensation, the policy which pays benefits if you’re injured on the job.

Temporary disability insurance is similar to Social Security disability insurance (SSDI) in that both are government programs, but SSDI enforces a very strict definition of disability that makes benefits difficult for most people to claim. The trade-off is that, at approximately $1,197 per month, SSDI benefits are considerably higher than temporary insurance benefits, which are usually measured in weeks and top out at no more than a few hundred dollars per payment or so. However, both pale in comparison to the enormous benefits payouts associated with private disability insurance coverage, which run into the thousands of dollars per month.

Temporary disability insurance also isn’t offered in most states. In fact, just five states and one U.S. territory offer some kind of temporary disability insurance program: California, Hawaii, New Jersey, New York, Puerto Rico, and Rhode Island.

How to qualify for temporary disability insurance

If your state offers temporary disability insurance, qualifying for it shouldn’t be too difficult. You only need to be out of commission due to a condition you acquired outside of work. (For injuries that occur on the job, you need to apply for workers’ compensation instead.) But the condition doesn’t need to be completely disabling – in fact, there is the expectation that you’ll return to the workplace in due time. For that reason, temporary insurance only replaces a tiny part of your income.

Qualifying isn’t difficult, but unlike SSDI, where your disability is expected to be permanent for the indeterminate future, temporary insurance is expressly for disabilities that you’ll quickly recover from. One of the most common conditions for which people claim benefits isn’t a disability at all: many people claim TDI benefits for pregnancy and childbirth.

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Disability insurance is meant to replace your income when you become disabled.

In some cases, you can claim both workers’ compensation benefits and temporary insurance benefits, although you had to have been receiving workers’ compensation benefits prior to your temporary insurance benefits claim. Not all states allow this overlap, so check with your state’s workers’ compensation administration.

Temporary disability insurance vs. short-term disability insurance

Temporary disability insurance is a kind of short-term disability insurance (STDI). The difference is that the product called short-term disability insurance is offered by a private company, while temporary disability insurance is simply a requirement by the state that you be paid a small sum if you can’t work for a short time.

People who purchase short-term disability insurance almost always do so through their company’s employee benefits program. Short-term disability insurance pays out much higher benefits than temporary disability insurance, but neither provides the coverage you might need if a disability puts you out of work for a long time. For that, you need long-term disability insurance, which, depending on the policy you purchase, could continue paying out even if your disability is permanent. Both STDI and TDI cover only short periods of disability.

Temporary disability insurance vs. Social Security disability insurance

Temporary disability insurance is also similar to Social Security disability insurance. The main difference here is that to qualify for SSDI, your condition has to be so disabling that you can’t be expected to do any other work. It’s not unheard of for people to be put out of their career by a disability only to be denied Social Security disability benefits because they can do other work, even if the work pays a far lower salary.

Temporary disability insurance is easier to qualify for than SSDI, but mostly because you’re not expected to be permanently out of work. Temporary disability insurance benefits are also considerably lower than those offered under SSDI because companies who offer it anticipate you returning to work after you recover from your condition.

Why you need more coverage than temporary disability insurance offers

In terms of replacing your income for the entire time you’re out of work, temporary disability insurance just doesn't cut. Seeing as the average disability lasts three years, long-term disability insurance is the best option. However, be prepared to shell out between 1% and 3% of your income on premiums.

Temporary disability insurance isn’t meant to replace your income. It may not even be enough to pay for the medical expenses you may incur while disabled. If your state offers it, you should absolutely take it if needed, but you can’t rely on it as a permanent solution.