Short- vs. long-term disability insurance: How it works

This article originally appeared on the American Fidelity Blog.

Understanding the differences between short- and long-term disability can be tough and knowing which coverage is right for you is not always easy. However, disability insurance is an essential part of a solid financial plan, so it’s important to understand your options.

What is disability insurance?

Disability insurance is designed to help protect you and your family financially if you become unable to work due to a covered injury or illness. When you use disability insurance, you receive a percentage of your monthly income. This could help you focus on your recovery and worry less about bills or other expenses that may be difficult to pay without financial support.

Understand the importance of disability insurance

What is the difference between short- and long-term disability?

The main difference between short- and long-term disability insurance is the amount of time until the benefits begin and how long the coverage lasts. Both insurance plans are designed to provide income protection until you return to work. Let’s look at how each plan can benefit you, depending on your situation!

Short-Term Disability Insurance

Short-term disability insurance is designed to help protect your paycheck for a shorter period. Depending on your injury or illness, this plan may cover you up to a few weeks or a few months, usually no longer than one year. The coverage may not be long-term, but the elimination period (also known as the “waiting period”) is usually only 7 to 14 days. For example, suppose your elimination period is 14 days. In that case there will only be 14 days in between the injury/illness and when you would be eligible to receive benefits after filing your claim.

Here are some common causes of short-term disability insurance:

- - - - Injury from a major accident
        
        Having a baby and taking maternity or paternity leave
        
        C-section
        
        Upcoming surgery and recovery time
        
        Experiencing bad side effects from medicine or medical procedures

Long-Term Disability Insurance

Like it sounds, long-term disability insurance can help protect your paycheck for an extended period. If you are looking at a longer recovery or a more serious condition, this is where long-term disability insurance is useful. Depending on your specific plan or when you’re able to return to work, you may receive benefits for up to two years, five years, ten years, or even until you retire.

The elimination period or “waiting period” for long-term disability is usually 90 days. You might have to wait longer to receive your benefits, but you are also covered for longer.

Here are some common causes of long-term disability insurance:

- - - - Heart disease, cancer, diabetes, or stroke
        
        Mental illnesses
        
        Muscle, back, or other joint pains
        
        Arthritis

What To Consider

How long can you go without a paycheck? How many sick days does your employer provide? These are two fundamental questions to ask yourself when deciding between short- vs. long-term disability insurance. Suppose you cannot go over a month without a paycheck and only have ten sick days. In that case, you should consider enrolling in both insurance plans, so you are prepared for the unexpected and have options to help you have financial protection. On the other hand, if you can go months or even a year without a paycheck, then long-term disability insurance may be enough for you. Talk to your advisor or account manager to discuss the best options for you!

3 questions you should ask about disability income insurance during your benefits enrollment

^{This blog is up to date as of April 2022 and has not been updated for changes in the law, administration or current events.}