Short-Term vs. Long-Term Disability: What's the Difference?
If you experience an unexpected injury or illness, disability insurance is as important to your financial well-being as medical care is to your physical well-being. Most people get disability benefits through their employer. But it is possible to purchase an individual policy if disability insurance is not offered by your employer or if you want to supplement the coverage that's available. But what is the difference between short-term vs. long-term disability?
The main differences between short and long-term disability are how long benefits last and what percentage of your income you will receive.
Understanding How Short-Term Disability Insurance Works
Short-term disability insurance will cover injuries, illness, and it is used to replace income during pregnancy.
The amount of time you can collect disability insurance is referred to as the benefit period. The benefit period for short-term disability insurance is typically three to six months so it is not a substitute for long-term disability insurance. Short-term disability works well to complement long-term disability insurance because it can cover the waiting period, or elimination period, between the time of your injury or illness and when the benefit period for long-term disability benefits begin.
The elimination period for short-term disability insurance is usually less than 14 days. If you're able to use short-term insurance and personal savings to extend the elimination period of your long-term disability insurance, you can get a substantially lower rate for a policy.
Neither short nor long-term disability insurance will cover 100% of your regular salary but both policies will provide a good percentage of your income. Under a short-term disability policy, you'll usually receive about 80% of your income. Long-term disability insurance typically replaces about 60% of your salary.
One important fact to remember when it comes to income replacement via disability insurance is that, in most cases, disability benefits are not taxable so you may receive closer to your regular take-home pay.
Understanding How Long-Term Disability Insurance Works
Most people purchase long-term disability policies from their employers but private insurance policies are available. However, expect to pay more for your premium. The elimination period for long-term benefits can range from 30 days up to two years but is usually 90 days. When purchasing long-term disability insurance, keep in mind that the longer the elimination period you choose, the lower your premium will be.
While the benefit period for short-term disability is measured in weeks or months, a long-term disability benefit period is measured in years. On average, long-term disabilities last for three years. But depending on the disability, the benefit period can be five to ten years or until retirement.
You can expect to receive approximately 60% of your regular salary under a long-term disability policy. As noted above, disability benefits are usually not taxed which will increase your benefit amount in relation to your usual pay.
Factors That Influence Both Short-Term and Long-Term Disability Insurance
Both short and long-term disability insurance premiums are influenced by a number of factors including:
- Overall health
- Your occupation
- Where you live
- Additional features you may desire
On average, you should expect to pay between 1% and 3% of your annual income for disability insurance. The most cost-effective way to obtain disability insurance is through your employer. With a group policy, your employer usually pays a portion of the premium and you pay a portion. Remember, if your disability insurance is provided through your employer, your coverage only lasts while you are employed. If you leave the company, you lose the benefit.
If you must purchase an individual disability policy, it's easier to find long-term disability coverage versus short-term coverage. Many insurers don't offer private short-term insurance and it can be expensive.
Benefit Payment and Insurance Company Denials
Long-term disability benefits cost the insurance company more money because the benefit period is longer. They often use unfair practices to delay or avoid paying long-term disability benefits. Be aware of these tactics and don't be fooled into giving up your benefits or accepting a lower amount of benefits than you're entitled to. Some unfair practices include:
- Repeatedly asking for documentation of your disability or claiming documentation was never received
- Requiring independent medical examinations or testing
- Claiming your disability isn't serious enough to qualify for benefits
- Offering you a lump sum benefit that's lower than the amount you're entitled to
These are just a few of the tactics you should be aware of when filing a claim for long-term disability benefits.