Understanding the Differences Between Short Term and Long Term Disability
Short-term and long-term disability insurance is designed to replace your income if you are unable to work due to a sickness or accident that is non-work related. Although the fundamentals are the same for both, each serves a different purpose.
It is estimated that one in every four workers will face a long term disability at some point in their careers. Therefore, having one or both of these coverages is a wise financial choice. This supplemental income will provide you financial assistance and helps relieve stress being placed on the family.
So what qualifies as short term disability and what qualifies as long term disability?
Short-term Disability – A shorter waiting period to get paid but payment lasts for a shorter period of time.
Long-term Disability – A longer waiting period to get paid but payment lasts for a longer period of time.
Short-term disability insurance covers a percentage of your lost salary for the first few days, weeks or months when you are not able to work. Generally, your payments calculate as being 50% of your salary depending upon the plan that you have. The types of illnesses or accidents that would qualify as short-term disability might be injuries from a car accident, maternity leave from work and non-fatal sicknesses whereby recovering is less than six months.
When it comes to missing work, most people have a number of sources for financial help:
- Paid leave: if your job provides sick leave then this time can be exhausted first.
- Automobile insurance: if you are injured in a car accident, your auto insurance may include payments to cover medical expenses and lost income.
- Emergency savings: this is why it is always good to put money away for those “just-in-case” emergencies that can cover you for up to six months if necessary.
What qualifies as the main advantage for short-term disability if that paperwork can be filed quickly and payouts are set up in a short amount of time, usually within two weeks once the plan waiting period is met.
Long-term disability insurance protects you from large catastrophic injuries or illnesses that would cause you to be out of work for an extended period of time. This type of coverage begins once you have exhausted your short-term disability. What qualifies as long-term disability differs from policy to policy. Some payouts last for 5 to 10 years whereas others will cover you until you turn age 65. Obviously the main advantage to having long-term disability is the financial piece of mind for you and your family if something catastrophic happened to you long term.
So which coverage is right for you? There’s really no way to predict what type of financial burden may come your way if you have an accident or illness. Ideally, having both short-term and long-term disability insurance would be ideal and provide maximum coverage across the entire duration of your absence. Since long-term offers greater protection over time, this one is usually the preferred choice.