About 25% of Americans will suffer from a disability for at least a year before they reach retirement age. And 5.6% will have a short-term disability of six month or less during their working life, according to the Council for Disability Awareness. Knowing these statistics point to the importance of understanding the difference between short-term and long-term disability insurance.
Serious health issues can quickly drain savings. They put people out of work for months and even years, making it difficult to support themselves and, if necessary, their families.
That’s where short-term and long-term disability insurance comes in. The coverage fills in the gaps as people recover for a few months from a short-term health hurdle or until they hit retirement age for a more serious one.
Understanding the Difference Between Short-Term and Long-Term Disability
Some employers offer both kinds of insurance to their workers. In 2018, the U.S. Bureau of Labor Statistics found that among people who worked for private industry, 42% had access to short-term disability and 34% had access to long-term disability through their employer. Among those who worked for state and local governments, 26% could get short-term coverage and 38% could get long-term benefits through work.
And if you’re lucky enough to work for an employer who offers these benefits, there’s a good chance it’s free. Among public and private employers who offer the benefit, between 83% and 95% pay the full cost of coverage.
If you’re considering signing up for your employer’s plan or getting disability insurance, here are some basics on short-term and long-term disability insurance.
What’s the difference between the two?
Short-term disability insurance usually runs from a month to a year, though some can cover claims that last as long as two years. Common short-term disabilities include pregnancy; injuries to the back, knees, hips, shoulders and other parts of the body; mental health issues; fractures, sprains and muscle strains; and digestive disorders such as hernias or gastritis, according to the disability awareness center.
Long-term disability insurance can run for years, until somebody hits retirement age or the person recovers. Common claims include cancer, along with longer lasting versions of the health issues that prompt short-term claims, including back problems, mental health issues and other injuries, according to the center.
How much does each benefit pay?
The total can vary widely. According to the Society for Human Resource Management, the payout from short-term disability insurance is typically about 60% to 75% of an employee’s base pay. For long-term disability benefits, you might get between 50% and 60% of your earnings, according to Insure.com. But, before you sign up for any policy, be sure you read the fine print. Some have a maximum monthly benefit. Others might only cover specific kinds of disabilities.
How much does short-term and long-term disability insurance cost?
Again, this varies widely depending on the plan and coverage. If your employer offers it, there’s a good chance it’s free and you should take advantage of it. If you’re buying it on your own, the cost runs generally between 1% and 3% of your monthly income.
Should you get short-term and long-term disability insurance?
If your employer offers it at reduced cost or for free, absolutely. If you’re considering buying your own plan, think about what you’d do during a health crisis.
Do you have enough money in an emergency fund or savings to support yourself for up to a year if you’re not able to work for that long? If so, experts recommend skipping short-term disability insurance and keep socking away what you can in savings to cover you if there is an emergency. If you haven’t started an emergency fund, now is a great time to start.
Long-term disability may be something to consider to protect yourself if a future disability keeps you out of work for longer than you could support yourself with no income. A policy will offer you some peace of mind that if the unthinkable happens and you can no longer bring home a paycheck, you’ll continue to have money coming in.
The CESI Team is committed to helping you reach your financial goals. If debt keeps you from living the life you dream of, contact us for a free debt analysis today and get started on the road to a brighter future!
