One of the more common questions people have about purchasing disability insurance is the question of short-term vs. long-term disability insurance.
It’s not always easy to know what’s best.
What’s the difference between the two? Which one do you need? Or do you need both?
Let’s start by explaining some definitions as far as short-term vs. long-term disability is concerned.
What is Disability Insurance?
Disability insurance is income protection.
It’s insurance that pays you, the policyholder, a regular paycheck when you’re hurt or sick and can’t work.
It protects your income from the very real possibility you’ll be disabled for a period of time during your career, whether due to injury or illness.
If you have disability insurance through your employer, you may pay for the policy, your employer may pay for the policy, you may split the cost—but either way, you’re the one who’s paid if you can’t work because of disability.
What is Short-Term Disability Insurance
As the name suggests, short-term disability insurance kicks in fairly quickly once you’re disabled.
Think of a few weeks to a few months.
It can be useful in the following cases:
- If you’re injured—let’s say you fall and break your arm.
- If you need a surgery to repair a joint and you won’t be able to work for a few weeks.
- If you have a baby and take time off for maternity leave (that’s right, short-term disability pays you money when you have a baby…now if we could only find some type of coverage to “pay” you in hours of sleep and maybe take on diaper duty).
What is Long-Term Disability Insurance
The first difference of short-term vs. long-term disability insurance is in when the policy begins to pay out.
Your long-term disability policy begins to pay after you’ve exhausted a longer waiting period. Usually three to six months.
If you’re looking at a longer recovery, or a more serious condition, this is where your long-term policy will come in.
A long-term disability policy will continue to pay for much longer, as well.
How long depends on the policy—you may get benefits for a year or two, or you may receive benefits until you reach retirement age.
Some of the most common causes of long-term disability:
- Back pain, or other joint and muscle issues.
- Illnesses such as cancer, stroke, or heart disease.
- Mental illnesses.
Short-Term vs. Long-Term Disability
Many people ask which they need, short-term vs, long-term disability insurance.
That’s not the best way to think about it. It’s not an either/or proposition.
Instead, the question you should be asking is how your short-term and long-term disability policies work together.
If your employer provides both long-term and short-term disability benefits, they will often be designed so that your short-term disability benefits cover you until you are eligible for long-term benefits. But if you are presented with several options, you’ll want to be careful with your selection.
If you leave a gap in your coverage you’ll have to use savings or debt to get by in between – not a good idea!
Your employer may offer one or both types of disability insurance. You may also buy a long-term disability policy on your own. Short-term disability coverage that you can buy on your own is less common, but it does exist.
Can I Skip One?
Wondering which you could skip, short-term vs. long-term disability?
Well, that depends. Let’s say you didn’t have a paycheck for a month or two.
Could you get by on savings and PTO from your work?
If the answer is yes, then you may be able to get by without short-term disability insurance.
However, what if you were unable to work for a year or two? Because the average group long-term disability claim lasts 34.6 months.
Would you be able to continue to pay your mortgage? Your car payments? What about any medical bills from your disabling condition?
And even if you have more than two years’ worth of savings—which would put you in a very small minority of Americans—wouldn’t you rather use that money for something other than covering your basic needs?
These are the types of considerations you need to weigh if you’re considering short-term vs. long-term disability insurance.