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Short-Term Disability Coverage Vs. Long-Term Disability Coverage

Short-term disability and long-term disability are both designed to protect your income in case you are unable to work. However, there are differences in the two types of coverage. Many people elect to have both short-term disability and long-term disability insurance policies.

What Is Short-Term Disability Insurance?

Short-term disability (STD) policies pay benefits for shorter time periods, after a brief waiting (elimination) period, which is usually less than 14 days. Benefits are typically paid for a maximum of three months to six months. This type of coverage is less expensive to purchase when done through a group plan, as opposed to an individual plan. Many employers offer short-term disability insurance as part of their employee benefits package.

What Is Long-Term Disability Insurance?

Long-term disability (LTD) insurance has a longer elimination period than short-term disability — at least 90 days in most cases. When the waiting period is over, however, benefits are paid out for much longer time periods – up to anywhere from two, five, or ten years to age 65 or retirement. As may be expected, you pay higher premiums for longer benefit periods.

Comparison Between Short-Term Disability & Long-Term Disability Insurance

We can compare the two types of disability insurance, feature by feature:

  • Elimination (waiting) period: Less than 14 days for STD insurance; 30 to 720 (usually 90) days for LTD insurance.
  • Benefit period: Three to six months for STD insurance; two, five, or ten years, or until retirement age for LTD insurance.
  • Coverage amount: Up to 80% gross monthly income with STD; up to 60% gross monthly income with LTD.
  • Average premiums: 1% to 3% of annual salary for STD insurance; same for LTD insurance.
  • How purchased: STD insurance is typically employer sponsored; LTD insurance is available to individuals as a private policy and may also be employer sponsored.

Factors Affecting The Price Of Short-Term Disability & Long-Term Disability Insurance

When purchased as an individual, the cost of short-term disability insurance may be prohibitive, but group plans are much less expensive. For this reason, most STD plans are employer sponsored. Major factors affecting the cost of long-term disability insurance include the length of the elimination period and the length of the benefit period. The longer you have to wait before you start receiving benefits, the lower your premiums will be. And the longer benefits will be paid out under your policy, the more you will have to pay in premiums.

Combining Coverage With Long-Term Disability & Short-Term Disability Insurance

You can save money on long-term disability insurance by choosing a longer elimination period. This is where your short-term disability insurance policy comes in. It kicks in in less than two weeks after you become disabled, provides benefits for three to six months, and covers a higher percentage of your gross monthly income. Having both types of policies could make it possible for you to purchase long-term disability insurance at lower rates.

If you are considering long-term disability insurance, speak to our experienced agent. We can advise you on cost-saving strategies and help you get the most disability coverage for your money.