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Understanding Short-Term and Long-Term Disability Insurance

Do you have the means to protect your financial security should you ever become disabled?

For most of us in the workforce, we keep the thought of disability tucked away into the deepest, darkest recesses of our minds. If we do not think about it, it will not happen, right? The fact is, before 20-year-old workers hit retirement age, about one in four will be out of work for 12 months due to disability. What is worse, fewer than half of all adult Americans have enough in savings to last three months without an income. With a better understanding of your options, and a little planning, you can rest easier, knowing that you have the means to protect your financial security, should you ever become disabled.

Short-Term Disability Insurance

Short-term disability insurance provides an income to employees who are too sick or injured (due to a non-work-related cause) to work. Short-term disability insurance may come from a variety of sources, including some state governments, employers and self-paid.

The federal government does not provide short-term disability insurance. However, five states do (i.e., California, New York, Hawaii, New Jersey and Rhode Island), replacing between 50 and 75 percent of a worker’s income for a specified period of time. Employees in the rest of the country must rely on some form of private short-term disability insurance.

Many employers provide short-term disability insurance plans to their employees in order to attract and reward top talent. Depending on the employer, these plans may come with various requirements, including:

  • Minimum service requirements,
  • Full-time status,
  • Use of sick leave prior to use of insurance, and/or
  • A doctor’s note confirming eligible illness or injury.

Like the state government funded insurance plans, these employer-paid short-term disability plans offer a percentage of the employee’s salary and last from 10 to 26 weeks.

For those individuals who do not have employer-paid short-term disability insurance benefits, like self-employed individuals, there are options for private, self-pay short-term disability insurance plans. Like the employer-paid plans, there are often varying levels of coverage that you can obtain. Most short-term disability insurance plans begin after a 14-day waiting period, and can last from a few weeks to a year, depending on the coverage you obtain. Like most health-related insurance plans, your age and current health status will be taken into account, when considering your insurability and premium costs. You will likely need to have a medical exam, prior to obtaining short-term disability insurance.

Short-term disability insurance covers employees or self-insured individuals who have a long-term illness, a severe disability or a pregnancy. These plans vary significantly in terms of premiums and benefits, so if you are paying for this insurance out-of-pocket, then you will want to shop around for the best premium-to-benefit plans for your needs and budget. To obtain financial security for injuries or illnesses extending beyond the short-term, long-term disability insurance should be considered.

Long-Term Disability Insurance

Like short-term disability insurance, long-term disability insurance can come from a variety of sources, including: the federal government in the form of Social Security Disability and Supplemental Security Income (SSDI) or Supplemental Security Income (SSI), employers and self-paid.

The federal government provides SSDI for workers who have worked for at least 10 years and paid Social Security taxes, and SSI for those who have not satisfied those work and Social Security tax requirements and have limited resources. If eligible to receive SSDI, you must wait five months from the date your claim is approved for benefits. For Supplemental Security Income (SSI), benefits begin one month from the date you filed your claim, or the date you became eligible for SSI, whichever is later.

SSDI and SSI can be difficult to obtain, with claims often extending years before being approved or denied. Working with an experienced social security disability attorney can help shorten that process and increase the odds of approval of your claim. Given the low odds of approval, it is also wise to obtain your own long-term disability insurance policy, if you have the means to do so, either through an employer-paid policy or a private pay policy.

Employers often offer long-term disability insurance to eligible employees. These private pay plans begin once short-term disability options have expired. These long-term benefits can last anywhere from two years, up until the employee turns 65. Since benefit requirements differ between plans, it is a good idea to review your long-term disability insurance plan to ensure that it fits your needs. For example, some plans pay if you are unable to work in your chosen profession (own occupation plans), while others require that you take any job you are physically able to do. This could mean a significant decrease in income for some people, which defeats the purpose of having a long-term disability insurance policy.

For individuals who are not eligible to receive employer-paid long-term disability insurance, there are private, self-pay plans available for purchase. These insurance plan premiums can cost anywhere from $25 to $75 a month for a $30,000 salary, to $166 to $500 for a $200,000 salary. The cost of LTD insurance will vary, based on other factors as well, including:

  • Coverage amount,
  • Benefit period,
  • Waiting period,
  • Your age,
  • Your health status,
  • Your occupation, and/or
  • Your geographic location.

With a one-in-four chance of becoming disabled during your working lifetime, it pays to know your options to protect your financial security. By taking some time to review your short-term and long-term disability insurance options, you can help safeguard your income and protect your family, in the event you are unable to work due to illness or injury. Doing so will provide financial peace of mind.