Disability insurance, also known as disability income insurance, provides financial protection by replacing a portion of your income if you are unable to work due to a severe illness or injury. It pays benefits directly to you, with no restrictions on how the money is spent. Disability insurance policies can protect up to 70% of your income for a period ranging from three months to the time you retire.
| Feature | Short Term Disability Insurance | Long Term Disability Insurance |
|---|---|---|
| Benefit Period | 3-6 months | Years (5, 10, 20, until retirement age) |
| Coverage | Up to 70% of income | 40-70% of income |
| Elimination Period | Shorter waiting period | Longer waiting period (usually around 90 days) |
The main difference between short term and long term disability insurance is the benefit period. Short term disability insurance is designed to cover you for a brief period, while long term disability insurance provides benefits for a more extended period. Short term disability insurance typically covers you for a term of 3-6 months, while long term disability insurance pays benefits for years, ranging from 5 to 20 years or even until you reach retirement age, depending on your plan.
Short term disability insurance usually ensures a higher percentage of your income, sometimes up to 70%, while long term disability insurance typically provides coverage equivalent to 40-70% of your income for a more extended period. To determine the level of coverage you need, calculate your monthly expenses, consider additional medical bills you may have to pay if you’re sick or injured, and determine what portion of your salary would cover those costs if you became disabled.
Short term disability insurance begins paying benefits within a couple of weeks following a qualifying illness or injury, while long term disability insurance requires a longer waiting period, called an elimination period, which is often around 90 days. You should consider how to cover your expenses during the elimination period and whether to purchase additional coverage.
Short term and long term disability insurance policies are designed to work together. Short term disability insurance covers you immediately following a severe illness or injury, and long term disability insurance maintains income replacement if your condition keeps you out of work past the end of your short term disability benefit period. If you have both short term and long term disability policies, short term disability insurance pays you benefits during the waiting period before your long term disability coverage begins.
Many employers offer disability insurance to their employees at no cost or a discounted group rate. If your employer doesn’t provide disability insurance or you’re self-employed, you can apply for an individual disability policy. Individual disability insurance elimination and benefit periods may differ from group disability insurance, and financial professionals can help you choose the right coverage for your situation.
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Article Sources
- Investopedia. Long Term Vs Short Term Disability Insurance
- Progressive. Short-Term Vs. Long-Term Disability: What'S The Difference?
- Bankrate. Short Term Vs Long Term Health Insurance
- Aflac. Short- Vs. Long-Term Disability Insurance: How It Works
- Corporate Finance Institute. Understanding Short-Term Vs. Long-Term Life Insurance