Short-Term vs. Long-Term Disability Insurance: What’s Right for You?

Imagine this: You wake up one day with a serious illness or an injury that keeps you from working. Suddenly, your regular paycheck stops coming in, but the bills don’t. What do you do? This is a common problem many people face, but don’t plan for. 

When it comes to protecting your income, choosing between short-term vs. long-term disability insurance can feel confusing. Both types promise financial help if you can’t work due to disability, but which one fits your needs best? 

Let’s break down everything you need to know about these two important disability insurance types so you can decide what makes sense for your situation.

What Is Disability Insurance?

Before we dive in, here’s the big picture: Disability insurance is a way to replace part of your income if you get hurt or sick and can’t work. It’s sometimes called disability income protection because it helps protect your paycheck. Think of it as a safety net for your finances when life throws a curveball.

Most people know health insurance covers doctor visits and treatments, but it won’t pay your rent or buy groceries if you can’t work. Disability insurance steps in to cover that gap.

The Two Main Disability Insurance Types

Disability insurance comes mainly in two forms:

1. Short-Term Disability Insurance (STD)

2. Long-Term Disability Insurance (LTD)

Both are designed to protect your income but differ greatly in how long they pay benefits and what kinds of situations they cover.

Key Differences at a Glance

What Is Short-Term Disability Insurance?

Short-term disability insurance (STD) covers you for a limited time—usually a few weeks up to six months—if you get sick or hurt. It’s designed to help replace part of your income during your recovery period.

Key features of short-term disability insurance:

• Benefit duration: Usually lasts between 3 to 6 months.

• Waiting period: Often 7 to 14 days before benefits begin.

• Income replacement: Typically 60% to 70% of your regular salary.

• Coverage examples: recovery from surgery, broken bones, pregnancy and childbirth recovery, and short illnesses like the flu.

• Cost: Premiums are generally lower compared to long-term disability insurance.

• Availability: Often offered through your employer as part of employee benefits.

Short-term disability is especially helpful if you expect to get back to work fairly soon but need some financial support during recovery.

What Is Long-Term Disability Insurance?

Long-term disability insurance is designed for more serious conditions where you are unable to work for an extended period, often several years or even until retirement.

Key features of long-term disability insurance:

• Benefit duration: Can last for years, or until you reach retirement age.

• Waiting period: Longer elimination period, usually 90 days or more before benefits start.

• Income replacement: Generally 5 50%% to 60% of your pre-disability income.

• Coverage examples: Major illnesses like cancer, chronic diseases, severe injuries, or permanent disabilities.

• Cost: Premiums tend to be higher than short-term coverage due to longer payout periods.

• Availability: Offered sometimes as part of employee benefits, but many people buy individual plans for extra protection.

Long-term disability insurance helps ensure your financial security if your disability lasts beyond the short-term window.

Why Both Short-Term and Long-Term Disability Insurance Matter

You might ask, Can I just have one or the other? The answer is no. Both types do different jobs and work well together.

• Short-term disability helps you right after an injury or illness. It covers your income until you get better or can start long-term disability.
• Long-term disability helps if your illness or injury lasts longer than the short-term period.

Think about it like this: short-term disability is your safety net for quick recovery. Long-term disability is your safety net for long-term or permanent problems.

Many employers offer short-term disability as part of employee benefits. But long-term disability may not be included or may be optional. If that’s the case, buying long-term disability insurance on your own is a smart choice.

How Much Does Disability Insurance Cost?

The cost of disability insurance depends on several factors, including

• Your age

• Your health condition

• Your occupation (riskier jobs usually cost more)

• The amount of coverage you want

• The length of coverage (short-term vs. long-term)

Short-term disability insurance generally has lower premiums because it covers a shorter period. Long-term disability insurance costs more but provides longer-lasting protection.

Since disability insurance replaces part of your income, the premiums are often calculated as a small percentage of your salary.

How to Choose Between Short-Term vs. Long-Term Disability Insurance?

Many people ask, “Can I just get one or the other?” The answer is usually no. Both serve different but important roles in your overall income protection.

• Short-term disability acts quickly after you become disabled. It’s a bridge to cover your bills while you recover.

• Long-term disability takes over if your disability continues past the short-term window.

Think of it like this: short-term disability is your first line of defense, and long-term disability is your backup plan if things take longer than expected.

Common Terms to Know About Disability Insurance

Here are some terms that will help you understand your policy better:

• Elimination period: The waiting time between when you become disabled and when benefits start.

• Benefit period: How long will you receive payments while disabled?

• Residual disability: If you can work part-time or make less money due to disability, some policies offer partial benefits.

• Own occupation vs. any occupation: Some policies pay benefits if you can’t do your specific job (own occupation), while others pay only if you can’t work any job (any occupation).

The Importance of Disability Income Protection

Most people think about health insurance for medical bills, but forget about income protection. If you can’t work, your bills don’t stop. Disability income protection helps cover your rent or mortgage, utilities, groceries, and other living expenses.

Without this protection, even a short illness could cause serious financial strain. Disability insurance gives you peace of mind, knowing you won’t lose everything if you can’t work for a while.

Employee Benefits and Disability Insurance: What You Should Know

Many employers offer disability insurance as part of employee benefits, especially for full-time workers. It’s worth reviewing your benefits package carefully. Sometimes short-term disability is automatic, while long-term disability may be optional.

Here are some tips:

• Find out what portion of your income the plan replaces.

• Understand the waiting periods.

• Check if your job duties affect coverage.

• See if you can buy additional coverage if needed.

If your employer doesn’t offer disability insurance, or if you want more coverage, consider buying an individual plan.

Real-Life Example: How Disability Insurance Helps

Let’s consider Mark, a warehouse worker. He slipped at work and broke his leg, unable to work for four months. Mark’s short-term disability insurance replaced 65% of his income, allowing him to focus on recovery without worrying about bills.

However, during recovery, Mark learned his injury caused complications that might keep him from working for over a year. Thanks to his long-term disability insurance, Mark has financial support while exploring options for rehabilitation or retraining.

Final Thoughts

Choosing between short-term vs. long-term disability insurance isn’t a simple yes or no. Both types play important roles in protecting your income and financial security. Short-term disability offers quick relief during recovery, while long-term disability guards against more serious, lasting conditions.

Take time to review your employee benefits, assess your risks, and consider talking to an insurance expert. With the right coverage, you can protect your income, your family, and your peace of mind.

For more personalized advice on disability insurance and to find a plan that fits your needs, visit The Jordan Insurance Agency. Don’t wait until it’s too late—your income protection matters.

FAQs 

Is long-term disability insurance worth it?

Yes. Although more expensive, long-term disability insurance offers critical financial protection if you face a serious health condition that keeps you from working for an extended time. Without it, your income and savings could be at risk.

What happens to my disability insurance if I change jobs?

If your short-term or long-term disability insurance is part of employee benefits, coverage often ends when you leave your job. You may need to buy an individual policy to maintain disability income protection.

How does disability income protection affect my taxes?

Typically, if your employer pays for disability insurance, the benefits may be taxable. But if you pay for your policy, the benefits you receive are usually tax-free. It’s best to check your specific plan.

Can I rely only on my employer’s disability insurance?

Not always. Employer plans may cover only a portion of your salary or might only include short-term disability. It’s important to review your employee benefits and consider supplementing with additional coverage.