One of the most common types of supplemental insurance in the United States is disability insurance, which can be short or long term. These policies are designed to replace the income you would lose if a non-work-related illness or accident leaves you unable to work.
If you become unable to work due to an unexpected event, you will need coverage so you won’t have to depend on your savings or go into debt. That is where this type of insurance comes in, so you can get better without having to worry about any impacts on your family’s quality of life. 
In this article, we will explain what short- and long-term disability insurance is. Find out how this type of policy can help you.
Short- and Long-Term Disability Insurance: Article Contents
What Does Disability Insurance Cover?
You probably already know that if you have an accident at work, you can get coverage through workers’ compensation insurance. But your employer’s insurance won’t always pay for things that happen to you outside of work: if you have a non-work-related illness that prevents you from going to work, or if you have an accident at home, while playing a sport or simply walking down the street in your free time, you might suddenly find yourself without income or coverage.
It’s important to realize that there are no federal programs that will cover this lack of income, and only a few states have some type of coverage for these cases. Therefore, it’s a good idea to purchase disability insurance to guarantee the money that will stop coming in when you can’t work.
Many people don’t think they need it and trust that nothing will happen to them that will prevent them from working. But according to the United States Census Bureau, a worker has a one-in-five chance of experiencing a disability. That means there’s a good chance this will happen to you. In fact, statistics show that up to 44.5 million accidents and injuries occurred in 2016, amounting to 16 accidents per second.
Given this clear risk, the first thing you should do is ask what coverage your employer offers. Disability insurance is often part of the benefits companies offer their employees, such as group life insurance and other collective products. However, some employers do not offer it. If your employer’s coverage conditions exclude events that occur outside of work, you should think about how you can protect yourself from the possibility of having a disability that prevents you from working. The best solution is to purchase disability insurance, which can be purchased from an insurance company in the form of short- and long-term policies.
How Does Disability Insurance Work?
When purchasing disability insurance, you should pay attention to several important factors. Check with the insurer to make sure you understand the following concepts:
- How does the policy define disability? Not all insurers define disability the same way. Verify what type of illnesses and injuries are covered, or if there are any exclusions. This is very important, because not all illnesses, conditions, or injuries will be covered. If you want to cover everything, you should also purchase supplemental health insurance, traditional accident insurance or accidental death and dismemberment insurance.
- When will I receive the benefit? Some clauses might have waiting periods; in this case, you will not receive the payout until that period has passed.
- How long will the benefit last? It’s very important that you figure out how long you will receive the money the insurance will give you if you have an illness or accident. This is crucial, because it will help you determine if you can get by with a short-term policy or whether you need a long-term one.
- How much money will be paid? The amount of coverage is also important, because it will allow you to calculate whether the payment will be enough to maintain your quality of life while you’re on sick leave and might not be receiving your full income.
Once you have all this information, you can choose the disability policy that best suits you and begin to enjoy your coverage.
How Do Short- and Long-Term Policies Work?
There are two main variants of disability insurance: short-term disability (STD) and long-term disability (LTD).
- Short-term disability. If you think that the health problems or accidents you might have won’t be so serious as to keep you from work for a long time, you should opt for short-term disability insurance. In general, these policies deliver a payout that will cover 50-70% of the income you would miss while off work. The coverage can last as little as ten weeks, but the average duration is 26 weeks, though this varies significantly between companies.
To get the benefit, you will have to quickly file a claim with your insurer and demonstrate that the accident or illness was not work-related and is covered by the policy’s definition of disability. Remember that some companies require you to have worked for a minimum period of time before you can access the benefits. - Long-term disability. Long-term disability insurance is designed to cover disabilities that last longer than 26 or 30 weeks and may last years, or even the rest of your life. It covers very serious accidents and illnesses that require constant medical care and completely prevent you from working. Functionally, it takes over where short-term insurance lets off, with coverage that lasts for years. Because of this long duration, and because they take on more risk, insurers ask higher premiums to fund these policies. The eligibility conditions are very strict; preexisting conditions, such as known serious illnesses, might even be taken into account to deny access to the policy.
Long-term insurance can pay benefits for periods ranging from two to ten years of disability, although the most common option is a policy that covers up until retirement at age 65.
As for the benefit, these policies typically cover 50-60% of the salary you would be missing. However, this coverage depends on the degree of disability you have: if you can work in another position, you will receive less, unless you are completely incapacitated from doing any activities.
Lastly, taxes: if you pay premiums out-of-pocket with your own money while also paying taxes, the benefits you would get from the insurance would be tax-free. In contrast, if your employer pays your premiums for you, you will have to pay taxes on the benefit money you receive.
One interesting option is a policy in which the insurer cannot cancel your insurance. If you passed the initial medical exam and the underwriting process, you will receive the policy, and the company will not be able to cancel it or increase your premiums. To obtain this benefit, you need to purchase “guaranteed renewable” disability insurance.
As you can see, both short- and long-term disability insurance policies are very interesting products that can help you supplement your coverage and protect your family. Get more information by visiting a trusted insurance agent and make the right selection from all available options.
