Each disability insurance policy is designed to protect your income from injury and illness. but some types of coverage are stronger than others. So how do you really know which type of disability insurance is best for your financial needs?
In this comprehensive guide, we cover everything you need to know about short-term disability insurance, including:
- what is short-term disability insurance?
- How does short-term disability insurance work?
- short-term disability insurance vs. other types of coverage
- what qualifies for short-term disability insurance?
- How much does short-term disability insurance cost?
- how to apply for short-term disability insurance
- Is short-term disability insurance taxable?
- Is short-term disability insurance worth it?
- injuries and illnesses covered
- how long you can receive disability benefits
- how long you have to wait after a disability event to receive compensation
- have children
- health problems
- caring for sick relatives
- employees must have worked for the employer for 12 months and 1,250 hours.
- also only applies to employers with 50 or more employees.
- intentionally self-inflicted injuries
- active participation in a riot
- loss of professional or occupational license or certificate
- commission of a crime
- work-related illness or injury that would be covered by workers’ compensation.
- acts of war
- criminal activities
- heart disease
- neurological disorders
- Your income. Short-term disability insurance policies typically pay 60 to 70 percent of your gross income. therefore, the more you earn, the more you will receive in benefits and the more you will pay in premiums. Please note that there may be a limit on benefits regardless of your income. this limit generally ranges from $5,000 to $6,500 per month.
- duration of benefits. short-term disability insurance policies often give you a choice of how long you’ll receive benefits. Typical short-term disability benefit periods are three months, six months, one year, and two years. the longer you receive payments, the more you pay in premiums.
- elimination period. all disability insurance policies include a waiting period, often called an elimination period. it is the period of time between the time a disability occurs and the time benefits are paid. Like the homeowners insurance deductible, it’s the portion you pay out of pocket before benefits kick in. The longer your disability insurance waiting period, the lower your monthly premiums.
- $126 per month for the same policy with a 7-day waiting period.
- $135 per month for the same policy with a monthly benefit of $4,500 (about 70 percent of the income of someone earning $78,000).
- $150 per month for the same policy with a 12-month benefit period instead of six months.
- $161 per month for the same policy with a monthly benefit of $5,000 (about 70 percent of the income of someone earning $85,000).
- $145 per month for the same policy, with a 14-day waiting period only.
- $68 per month for the same policy, with a 6-month benefit period only.
- $135 per month for the same policy, with only a monthly benefit of $3,500 (about 70 percent of the income of someone earning $60,000).
- $129 per month for the same policy, with a 12-month benefit period only.
- $43 per month for the same policy, with a 30-day waiting period only.
read on for more information.
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By definition, short-term disability insurance is a form of insurance that replaces a percentage of your income through weekly benefits if you suffer a temporary injury or illness that prevents you from working.
This type of disability income insurance is ideal for disability events that may limit the ability to work, but from which people generally recover, such as a plumber who breaks his hand or a pilot who undergoes back surgery.
Short-term disability coverage can be obtained individually from a private insurance company or as part of a group, usually through your employer.
To get a better idea of how short-term disability works, let’s start by answering some frequently asked questions and explaining how it compares to other types of disability coverage.
how much does short-term disability pay?
If you qualify for short-term disability benefits, you’ll typically be reimbursed about 60 percent of your lost wages. depending on the policy, the benefit can be as low as 40 percent or as high as 70 percent. most policies also have a benefit limit.
when does short-term disability begin?
Before short-term disability benefits take effect, there is typically a 14-day elimination period. however, this waiting period can be as short as a week or as long as a month.
How long is the short-term disability?
Benefit periods for short-term disability insurance plans generally range from three to six months. however, some plans may pay for up to one or even two years.
Let’s take a closer look at short-term disability insurance by comparing it to similar types of coverage.
short-term disability vs. long-term disability
The main differences between short-term and long-term disability insurance are:
You shouldn’t skip long-term disability insurance coverage in lieu of just having a short-term policy. short-term coverage will not be adequate in the event of a serious injury or illness. Without long-term coverage, you could find yourself without any income after just a few months.
The best strategy is to purchase an individual long-term disability insurance policy; then top it off with any short-term and/or long-term group plans your employer may offer. By combining different types of coverage, you can protect your income against almost any type of injury or illness that could affect your ability to earn income.
more information: short-term disability vs. long-term disability
short-term disability versus workers’ compensation
It’s important to remember that short-term disability insurance is different from workers’ compensation insurance, which provides coverage for injuries that occur on the job. Nearly 90 percent of disabilities are not job-related. therefore, they are not covered by workers’ compensation.
If an injury or illness that limits your ability to work was caused by something unrelated to your job, workers’ compensation will not cover the loss of earnings. Similarly, if you are injured or become ill while doing your job, short-term disability insurance may not provide benefits during your absence from work.
more information: workers compensation against disability
short-term disability versus fmla
Sometimes people also confuse short-term disability with Family and Medical Leave Act (FMLA). The FMLA is a federal law that protects workers who need time off for various family and medical reasons. stipulates that you must be given up to 12 weeks of unpaid time off for:
The law also protects you from being fired from your job while taking a leave of absence covered by the law.
However, the law does not provide a replacement for the income you might lose while taking leave (although some employers do provide paid leave for certain circumstances). In addition, there are several requirements to be eligible for the FMLA license:
more information: short-term disability vs. fmla
short term disability vs ssdi
another common belief is that social security disability insurance (ssdi) can cover events of temporary disability. while this is true in some cases, the benefits of ssdi are the most difficult to obtain.
Social Security generally won’t consider you disabled if you work and earn more than $1,220 in a month. if you are not working, social security will consider whether you can work. if you can, you won’t qualify for ssdi benefits, even if it’s not the type of job you had before your injury or illness.
According to the Social Security Administration, only 34% of SSDI applicants had their applications approved between 2006 and 2015. Even if you qualify for SSDI, the benefits are likely to replace only a small fraction of your income. the average monthly disability benefit in 2017 was $1,172.
Short-term disability insurance covers temporary injuries and illnesses that are less serious in nature. Like long-term coverage, what qualifies for short-term disability depends on the definition of disability, which varies from policy to policy. In general, eligibility for benefits is tied to your ability to perform the duties of your current occupation.
Your short-term disability insurance policy may also require you to lose a certain percentage of earnings due to disability. During your short-term disability leave, you may be required to provide the insurance company with updated medical information to verify your disability and continued eligibility for benefits beyond the initial approval of your claim.
In addition to injuries and illnesses that limit your ability to work, surgical procedures that are deemed medically necessary will qualify you for short-term disability benefits. Some policies will provide benefits for bariatric weight-loss surgeries. organ donation is also usually covered. purely cosmetic procedures may not be covered.
You may also qualify for benefits if prescription drugs or medical procedures cause side effects that keep you from working.
What does short-term disability insurance not cover?
Your short-term disability insurance policy may include coverage exclusions. these will be listed in your policy contract.
Exclusions mitigate a carrier’s risk of paying a claim resulting from high-risk conditions or activities, and typically include:
In addition, short-term disability insurance companies often disqualify people with pre-existing conditions from obtaining coverage or receiving benefits related to their condition. These may include:
Also, don’t count on short-term disability policies to cover time off to care for a sick family member or adopt a child.
If you have short-term disability insurance through your employer, many of these plans require you to have worked a certain amount of time before coverage begins. Many employers also require you to exhaust paid sick leave or use paid time off before you are eligible for short-term disability benefits.
The cost of short-term disability insurance is determined by the underwriting process. underwriting short-term disability insurance may differ slightly from long-term disability policies.
Individual long-term disability insurance requires full underwriting. Insurers have to assess a person’s risk of filing a claim because benefits may be paid over a long period of time. therefore, insurers will assess your application based on your age, health status, gender, the level of risk associated with your job, and any hobbies or interests that may cause a disability.
On the other hand, short-term policies may not be fully covered by disability insurance companies. As noted above, many short-term policies that are sold individually are guaranteed issue, meaning there is no underwriting. others may only require answers to questions about your health without the medical exam required for long-term disability insurance.
Injuries that cause temporary disabilities are generally not related to the insured’s age, health, job or other risk factors. they just happen, whether it’s a bad fall resulting in a broken bone or a pregnancy complication. still, you may be asked about pre-existing health conditions that disqualify you from coverage or limit your benefits.
The main factors that affect the cost of short-term disability insurance include:
At best, you can get short-term disability coverage for free (or at least at a reduced cost) through your employer. if not, here are estimates of what an individual policy may cost for different types of people:
short-term disability example #1
$105 per month for someone between the ages of 18 and 35. The hypothetical policy has a 14-day waiting period, a 6-month benefit period, and a monthly benefit of $3,500 (70 percent of earnings for someone earning $60,000 a year). year). would be:
short-term disability example #2
$97 per month for someone between the ages of 36 and 45. The hypothetical policy has a 30-day waiting period, a 12-month benefit period, and a monthly benefit of $3,000 (about 70 percent of earnings). of a person earning $51,000). would be:
short-term disability example #3
$77 per month for someone between the ages of 46 and 55. The hypothetical policy has a 7-day waiting period, a 3-month benefit period, and a monthly benefit of $2,000 (about 70 percent of earnings). of a person earning $34,000). would be:
Many employers offer short-term disability insurance coverage to employees as a group plan. many companies even pay the full premium for their employees. Some states require employers to provide this coverage.
If you can’t get short-term disability through an employer or other group membership, you can buy an individual policy. this can be done through an insurance agent or directly from an insurance company that offers this type of coverage.
Group plans are guaranteed issue, meaning you automatically qualify for coverage without going through subscription. short-term policies that are sold individually are also sometimes guaranteed issue.
However, most short-term policies sold directly to an individual will require the applicant to answer health-related questions. These questions will ask if you are currently or have in the past been treated for any number of pre-existing conditions. If so, you may be disqualified from coverage or your benefits may be limited.
more information: disability insurance & pre-existing conditions
how to apply for short-term disability benefits
To receive benefits, you will need to file a claim with the insurance company. This involves filling out a form, either in print or online. The form will ask for the date you last worked, a description of your medical condition, and other pertinent information. your employer and doctor will also need to complete sections of the form.
Once you submit the claim form, the insurance company will review your medical records to determine if you meet the definition of disability as defined in the policy. If your policy doesn’t cover pre-existing conditions, the insurer will look for evidence of undisclosed conditions.
The premiums you pay for short-term disability insurance are not tax deductible. however, any policy benefits you receive will be tax-free income. this is true whether you are purchasing a group plan or your own individual policy.
If your employer pays the premiums without including the cost in your gross income, the policy benefits will be taxable income.
Consult a tax advisor if you have questions about the tax treatment of disability insurance premiums and benefits.
If you earn an income and don’t have any type of disability coverage, it’s probably worth buying short-term disability insurance. This is especially true if you have dependent loved ones or any other major financial obligation that you can’t afford to fall behind on.
That said, you should also consider getting a long-term disability insurance policy to further protect your income and maximize your financial security. short-term disability benefits start and end sooner, so it’s a good idea to have a long-term disability plan as well in case you find yourself in a situation where you need both benefits.
The information and content provided in this document is for educational purposes only and should not be considered legal, tax, investment, or financial advice, recommendation, or endorsement. brisa does not guarantee the accuracy, completeness, reliability, or usefulness of any testimonials, opinions, advice, product or service offerings, or other information provided here by third parties. individuals are encouraged to seek the advice of their own tax or legal advisor.