The first thing to know is why you need disability insurance: 1 in 4 workers become disabled during their working years1 – and when you can’t work, you probably don’t earn income. Disability insurance helps protect your income by paying a periodic cash benefit if you have an illness or injury and are unable to work. That’s why it’s also called disability income insurance.
A lot of people think disability insurance coverage is for on-the-job accidents at construction sites and factories. Those are actually covered by worker’s compensation insurance. Short Term Disability insurance is for everything else that can cause a medical condition that keeps you from working. The fact is, most disabilities aren’t even caused by accidents or injury – they’re caused by chronic conditions or illnesses such as cancer, heart disease, or even arthritis. Many short-term policies also cover pregnancy, particularly group policies. This article will help answer three key questions:
Short term disability insurance (or STD) is one of two basic types of disability coverage: the other is long term disability. When you’re unable to work, STD pays a benefit that replaces a percentage of your weekly or monthly income, depending on the specifics of the plan. Like a paycheck, the benefits you receive from short term disability can be used for anything you want or need, including:
- Rent or mortgage
- Credit card and loan payments
- College or childcare
- Even things like going to the movies or dining out
True to its name, short term disability is for temporary medical conditions which make up the majority of claims. Most people get STD as part of a group insurance plan through their employer – and in a handful of states, companies are required to provide it. There are a number of disability-specific terms and provisions in a disability policy or contract, but these are the key features:
- The benefit amount: This is the sum of money you get each week or month you can’t work. It almost never replaces your entire salary, but typically varies between 50% to 80% of your normal pay depending on the terms of the plan. Some STD plans provide stepped benefits, e.g., 80% of your salary for the first 8 weeks, then 70% for the next 8 weeks.
- The premium: The monthly amount you (or your employer) pay for the policy. Premium costs vary based on the benefit amount and period, as well as other factors.
- The elimination period: Also called the waiting period, it’s the period of time after you are disabled until you can start receiving benefits. A 14-day STD elimination period is typical – but it can range from 7 to 30 days. Employees often use vacation or sick days to keep their salary going for as much of the elimination period as possible.
- Benefit period: The length of time you can receive benefits. Most STD plans provide benefits for a period of 3 to 6 months; some plans may have a longer period, but not more than a year – that’s why you may need long term disability.
- Definition of disability: Every disability policy has a specific definition of what it means to be disabled in order to qualify for benefits. Generally speaking, an injury or condition that renders you physically unable to do your job will usually be covered; but some issues such as mental illness or pregnancy (see below) may or may not be covered depending on the plan.
Disability benefits don’t come automatically – you have to file a claim
Even if your injury or illness is obvious, you can’t just decide for yourself that you’re unable to work. You’ll need evidence – medical records and so forth – showing that you have a condition that meets the policy’s definition of disability. The specific process and paperwork requirements vary from plan to plan; if you have coverage through work, your first step should be to contact your HR department. If you have an individual plan (coverage you bought yourself directly from an insurer), your plan documents should clearly state how to contact the company in order to file a claim.
Many STD plans include a rehabilitation component
All STD plans help tide you over with replacement income while you can’t work, but some can also help you get back to work faster. A lot of employers offer plans with added rehabilitation incentives and programs that can help make the transition back to work easier. It’s a smart way to minimize the disruptive effects of disability – for companies and employees alike.
Short term disability and pregnancy
The Family and Medical Leave Act (FMLA) requires most employers to give workers up to 12 weeks of unpaid family leave – and guaranteed employment upon return – for the birth of a child among other family care situations. However, according to the Bureau of Labor Statistics, only 15% of employees had access to paid family leave in 2017. If your employer does pay for family leave, then you don’t need (and may not qualify for) short term disability. As mentioned before, not every policy covers pregnancy and childbirth. If yours does, then you can typically receive 6 weeks of coverage following a delivery without complications, or 8 weeks following a C-section.
In a word, yes. Some disabilities last longer than six months or a year, so the two kinds of coverage are complementary: Once your STD benefits end, LTD coverage can continue to replace a portion of your income.
If STD and LTD both do the same thing, why are they split into two types of policies which are purchased differently? There are a few reasons.
As we’ve already noted, short-term disabilities are much more common than long-term disabilities, and coverage may be mandated by the government. Also, people with temporary disabilities have different needs than those with long-term or permanent disabilities: they’re primarily concerned with getting past their sickness or injury and going back to work. That’s why many STD plans offer rehabilitation benefits.
When someone has a major and lasting disability, it can’t be assumed they’ll be able to return to their profession – even if they are healthy enough to do other work. For that reason, LTD policies have a more detailed definition of disability which differentiates between own-occupation disability and any-occupation disability. Own-occupation policies pay a benefit if you lose the ability to perform your profession or specialty. Any-occupation policies will continue payments if you are unable to work in any other occupation for which you are suited by education, training, and experience.
The best way to get STD coverage is through your employer. In many cases, coverage is mandated by the state or provided as a wholly employer-paid work benefit. Other companies offer it as part of their “voluntary” or optional employee benefits package, which means you'll pay at least a portion of the cost. Even if you have to pay the entire premium, it’s likely your best choice for STD coverage because:
- Compared to an individual plan, coverage you get through work will feature relatively lower group rates.
- Workplace plans usually have fewer exclusions for pre-existing conditions and offer more features and broader coverage, such as coverage for pregnancy and mental health issues.
- Acceptance is typically automatic.
You can also purchase an individual plan through an agent or broker. However, there are some drawbacks to purchasing short-term disability insurance on your own:
- Costs may be higher compared to an employer plan with group rates.
- Acceptance is not automatic: Underwriting (i.e., the insurer’s risk evaluation process) is more stringent, and they will want to assess your age, health status, and other factors before issuing a policy.
- Pregnancy, if covered, might be considered a pre-existing condition if you are already pregnant.
Mandated state Disability and Paid Family & Medical Leave plans
Some states offer state-sponsored disability or medical leave income protection for their residents, but you have to live and / or work in that state to qualify. It’s paid for via mandatory employee payroll deductions, and the plans provide short-term wage-replacement benefits for non-work-related disabilities (work-related disability is covered under worker’s comp). To see if your state offers this type of program, contact your state’s Department of Labor or Employment.
Accident insurance and critical illness plans
This is coverage that typically provides a cash payment – as opposed to ongoing disability income replacement – if you suffer an accident or are diagnosed with a major health issue. The benefit is paid even if you don’t miss work and can be used for any purpose.
- These types of plans are offered as a voluntary benefit by many employers.
- Affordable plans can also be purchased directly from insurance companies such as Guardian.
If you don’t have access to group STD coverage through work, you may want to plan to put aside six or more months of salary into a non-retirement savings account so that you have something to rely on in the event of a medical condition which prevents you from working.
Long term disability coverage
Many professionals believe that people without employer-provided short term disability are better off investing in a long term disability plan, while relying on savings or one of the alternatives above for short-term needs. It’s an issue worth talking about with your financial advisor; if you don’t have one, Guardian can connect you to a professional or provide a long term disability insurance quote online.
In summary: The pros and cons of short term disability insurance
The value of an STD policy has a lot to do with how you get your coverage. If your employer pays for your short term disability – or you have mandated coverage through the state – then there is no downside, even if the benefits provided are somewhat limited. Many employers offer STD as an optional voluntary benefit and subsidize part of the cost. Even if they don’t, you should probably opt for coverage because acceptance is automatic, and with group rates the amount deducted per paycheck will be relatively low.
Compared to a group plan, individual STD plan premiums will be higher, coverage may not be as broad, and acceptance is not guaranteed.
In any case, short term disability coverage only provides benefits for a limited period of time – typically 3-6 months. For a longer lasting or more severe disability, you’ll need long term disability coverage as well. That's why it’s worth speaking to a financial professional about your overall protection needs.
What qualifies as a short term disability?
Every disability policy has a specific definition of what it means to be disabled in order to qualify for benefits. Generally speaking, a condition that renders you physically unable to do your job will usually be covered, but some issues such as mental illness or pregnancy may or may not be covered, depending on the specific terms of the plan.
Is short term disability the same as FMLA (The Family and Medical Leave Act)?
No. Short term disability insurance provides income to replace a portion of your salary when you have an illness or injury that causes you to miss work. FMLA is a federal law that lets eligible employees take up to 12 weeks of unpaid, job-protected leave per year for certain family and medical reasons. For more information on FMLA visit the Department of Labor website at www.dol.gov.
Should I get a short term disability policy?
Group STD coverage through work can be very worthwhile because it provides valuable disability income at little or no cost to the employee. The value of STD benefits purchased as an individual requires further evaluation; plans tend to be expensive and come with a number of limitations.
How long can you be on short term disability?
Each plan has a specific benefit period: 3-6 months is typical, but some plans provide benefits for as long as a year. For longer lasting disability benefits, you need to also have a long term disability policy.