Short-Term vs Long-Term Disability: What You Need To Know

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Disability insurance is a topic that no one likes to think about. However, it can be an incredibly helpful investment should you encounter any sort of mishap, either on the job or off. There are two types of disability insurance, short-term disability, and long-term disability. While each company’s policy and requirements are different, some basics could be worth getting a grasp on ahead of time.

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To better understand the differences between these two types of plans, here’s a rundown of what generally qualifies for short-term and long-term disability, when each one might come in handy, and even how they can work in tandem.

What Qualifies as a Disability?

When it comes to qualifying disabilities, every insurance policy will likely qualify things a little differently. Essentially, a disability is qualified as a significant life event that prevents you from performing day-to-day tasks, including the duties required of your job. 

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They tend not to include things like being out sick with a bad head cold for a few days, but rather a significant impairment that can impact your overall livelihood if not prepared for. Things like debilitating illness, significant rehabilitation or recovery time, or even pregnancy could be considered as such. 

What is Disability Insurance?

Disability insurance, also known as disability income insurance, is a policy that’s designed to keep you from losing income while you’re unable to perform in your job. When enacted, these policies pay benefits directly to the policy-holder, which is designed so they’re able to keep up with their bills and other expenses while they’re out of the workforce. 

It’s similar to worker’s compensation, although short-term disability can cover injuries sustained outside the job as well. To formally qualify for short-term disability insurance, someone has to be deemed unable to do their job by a medical professional. To qualify for long-term disability, a doctor has to verify that the recipient is unable to do any job. 

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While every policy will be different, short-term versus long-term will typically be the length the policy will supplement your income, as well as the specifics of what kind of coverage it will offer during that time. One major difference is that short-term disability plans are often paid for at least partially by employers. For these employers, it serves as a means to keep their investment in a valuable worker and since the actual payments to the recipient are made by the insurance company, it’s cost-effective, as well. 

What Are the Differences Between Short-Term and Long-Term?

The main difference between short-term from long-term insurance is the period allotted to receive benefits, also known as the benefits period. As always, every policy will vary quite a bit, but generally speaking, short-term disability will cover three-to-six months. Long-term disability, however, usually dates coverage in terms of years. In some cases, the coverage can last until you reach retirement age. 

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The types of coverage will be different as well. Short-term coverage typically offers around 70% of someone’s total income. Long-term coverage is generally less, starting around 40  percent of income, but those benefits are often paid out for a much, much longer period. 

The two types of plans aren’t mutually exclusive, either. Sometimes, short-term benefits can run out before someone is recovered, or other unforeseen complications. In those cases, a long-term disability insurance plan may be the next step. 

Another upside is that both short- and long-term disability policies typically often allow for a good deal of flexibility. To make sure you’re making the plan that’ll work best for you, calculate your monthly expenses — including any additional medical bills you may have accrued, and try to customize a plan that’ll cover these expenses comfortably. 

When Do Payments Start Kicking In?

Another big difference is when you’ll start receiving the money promised in these plans. Known as the elimination period, short-term disability insurance is designed to start paying out within weeks. Long-term, however, can take as long as 90 days before the elimination period is over. It’s important to consider this longer elimination period when planning your coverage. 

Unless you have an emergency fund saved up, you may want to consider taking out additional coverage to help supplement any long-term disability coverage. This can help take care of any immediate expenses (medical or otherwise) while waiting for the disability payments to kick in.

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