What is short term disability insurance?
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If you’re not exactly sure what short term disability insurance is, how it differs from other kinds of disability plans, and what it can do for you, we can help.
The first thing to know is why you need disability insurance. Disability is more common than you may think: about 5% of working Americans experience a short-term disability each year — and most don’t originate at work, so they aren’t covered by workers' compensation.1 Disability insurance helps protect your income by paying some or all of your salary for a set number of weeks if you have an illness or injury and are unable to work.
Some of the leading causes of short-term disability claims include maternity, musculoskeletal issues, digestive disorders, mental health conditions, and cancer. This article will help answer three key questions:
What is short term disability insurance?
Short term disability insurance (or STD) is one of two basic types of disability coverage: the other is long term disability (or LTD). When you’re unable to work due to an illness or injury, 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
Utilities
Credit card and loan payments
College or childcare
Groceries
Even things like going to the movies or dining out
True to its name, short term disability is for temporary medical conditions that can arise from non-work-related injuries and illnesses, which make up the majority of claims. Most people get short term disability as part of a group insurance plan through their employer. 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 13 to 26 weeks; 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; mental health issues may be covered as well, if they meet the definition of disability.
Disability benefits don’t come automatically — you have to file a claim
Disability claims require evidence and proper documentation to be approved, so 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
STD plans contribute to overall financial wellness by helping to tide you over with replacement income while you can’t work. Some plans can also help you get back to work easier and faster: A lot of employers offer plans with added rehabilitation incentives and programs that can help to ease the transition back to work. It’s a smart way to minimize the disruptive effects of disability – for companies and employees alike.
Short term disability and pregnancy
Pregnancy and childbirth are common situations where more than one type of leave can apply.
For example, the Family and Medical Leave Act (FMLA) requires most employers to give workers up to 12 weeks ofunpaid family leave — and guaranteed employment upon return — for the birth of a child, among other family care situations.
Further, Paid Family and Medical Leave (PFML), available in a growing number of states, allows workers to take paid time off for a variety of qualifying reasons, including bonding with a new child. However, access to paid leave varies greatly: According to the Bureau of Labor Statistics, only 27% of employees had access to paid leave in 2023.2
However, birth parents can receive payment if they have short-term disability insurance. In fact, pregnancy and childbirth are common reasons for disability claims under short term disability insurance.
Parents with access to PFML and short term disability insurance can use both: PFML is limited to a set number of weeks allowed during a calendar year; once those weeks are used, you cannot use PFML again until the next calendar year. Short term disability, however, can be used more than once in a calendar year, which can be beneficial in the event the parent has any reoccurring health issues that can qualify for leave, such as complications after a C-section.
Should you consider both short term and long term disability insurance?
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.
Short-term disabilities tend to occur far more frequently 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 own occupation. 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.
How do you get short term disability coverage?
The most common way to get STD coverage is through your employer. In many cases, coverage is provided by the employer as part of their employee benefits package. 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.
Personal savings
If you don’t have access to 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
Long-term disability coverage may also be available through your employer. If not, It’s an issue worth talking about with your financial professional.
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 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 13 to 26 weeks. 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.