Cost & Coverage
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Temporary disability insurance is offered by your employer for relatively short periods of disability as mandated by certain states.
Disability insurance is a type of financial product that protects your income when you are so disabled that you can’t work. There are long-term and short-term versions of disability insurance, meaning you can receive coverage that lasts less than a year or coverage that lasts many years, including up to retirement. How much coverage you need is determined by how much income you need to replace, and the amount you pay in premiums to keep your coverage in force rises with the amount of coverage you need.
But if you’re only disabled for a short time, some states offer temporary disability insurance (TDI) that doesn’t cost anything. 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 the latter 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 TDI benefits, which are usually measured in weeks and top out at no more than a few hundred dollars per payment or so. 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.
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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, TDI 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, TDI 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.
Filing a TDI claim is done through your state’s office of disability insurance, although TDI programs are frequently administered by the same office that administers workers’ compensation claims. If your state requires your employer to provide TDI coverage, your employer may subsidize the cost entirely or withhold money from your paycheck the way it does for other socialized benefits programs like Medicare. Withholding amounts are a pittance: a maximum of just 60 cents per week in New York, for example.
The states that require TDI coverage also set a limit on how long you can claim benefits. These periods range from between half a year to one full year, but when you recover from your condition you can no longer claim benefits.
Disability insurance is meant to replace your income when you become disabled.
In some cases, you can claim both workers’ compensation benefits and TDI benefits, although you had to have been receiving workers’ compensation benefits prior to your TDI benefits claim. Not all states allow this overlap, so check with your state’s workers’ compensation administration.
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. Unlike TDI, you may have to pay premiums on a short-term disability insurance policy you buy through your employer.
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.
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.
In terms of replacing your income for the entire time you’re out of work, long-term disability insurance is the most cost-effective option. That’s because it’s the only type of disability insurance that not only has the longest benefit period but also replaces the entirety of your income. Long-term disability insurance benefits are, on average, about 60% of your pre-tax income, but because the benefits are usually not taxed they are similar in amount to your after-tax income. However, be prepared to shell out between 1% and 3% of your income on premiums.
Short-term disability insurance may be easier to afford, but if you become disabled you don’t necessarily want to rely on it to provide coverage for the entire time you suffer your condition. Many people combine STDI with LTDI because STDI has a shorter waiting period (or “elimination period”) before you receive benefits. Your short-term disability benefits can kick in during your LTDI waiting period so there isn’t any gap in your protection.
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.
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