Written By Caitlin See
Disability insurance can be a financial lifesaver if you experience a disabling injury or illness. There are several types of disability insurance, each with policy nuances that vary by insurance carrier. However, we can break it down into two main categories: short-term vs. long-term disability insurance.
Many people assume they have adequate income protection through their work. But employer-provided policies are usually for short-term coverage or have policy limitations that you might not be aware of until it’s too late. Understanding the differences between short-term vs. long-term disability insurance can help ensure you have sufficient coverage when you need it the most.
What’s the difference between short-term vs. long-term disability insurance?
Disability insurance provides an income replacement benefit for an off-the-job injury or illness that isn’t otherwise covered by workers’ compensation. But short- and long-term disability insurance function differently, particularly regarding waiting periods, actually receiving benefits and coverage levels offered.
| Elimination periods | Benefit periods | |
|---|---|---|
| Short-term disability | Up to 14 days | 3 to 6 months |
| Long-term disability | 30, 60, 90, 180 or 365 days | 2 years, 5 years, age 65, age 67 or age 70 |
What is short-term disability insurance and how does it work?
Short-term disability insurance (STD) provides basic coverage immediately following a serious injury or illness that prevents you from working. It’s designed to help cover essential expenses for a temporary disability that lasts several months, such as when recovering from surgery.
Your short-term disability payout is based on a percentage of your pre-disability earnings. Policies vary, but STD benefits typically provide up to 60% of your pre-tax income if you’re unable to work.
Short-term disability benefits begin a lot sooner than long-term disability insurance, usually within 14 days or less of the disabling event. This amount of time is generally called the elimination period or waiting period.
Although the waiting period allows you to collect benefits shortly after an accident or diagnosis, the benefit period (i.e., how long you receive benefits) usually only lasts for three to six months.
When does short-term disability insurance make sense?
Most companies offer short-term disability insurance as part of their employee benefits package, which is why many people mistakenly believe they have enough coverage. But the benefit period, elimination period and definition of disability will depend on the specifics of your employer’s plan.
Based on data from the Integrated Benefits Institute, the Council for Disability Awareness lists the most common short-term disability claims as:
- Diseases of the musculoskeletal system and connective tissue affecting the back and spine, knees, hips, shoulders, and other parts of the body.
- Diseases of the digestive system, including stomach disorders, hernias, and liver and digestion disorders.
- Pregnancy, childbirth and puerperium (e.g., first six weeks postpartum).
- Mental, behavioral and neurodevelopmental disorders, including depression and anxiety.
Other common causes include injuries such as fractures, sprains, and strains of muscles and ligaments.
Therefore, short-term disability insurance can be beneficial if you’re only out of work for a few months at most.
How does long-term disability insurance work?
Long-term disability insurance (LTD) is a more substantial and critical form of disability coverage. It’s designed to provide replacement income for an extended period of time.
For example, some LTD policies have a benefit period of two years while others cover you until retirement age — which could result in receiving disability income for several decades, depending on your age and the severity of the disability. Common benefit periods include two years, five years or until age 65, 67 or 70.
Unlike with short-term disability coverage, you’ll have to wait to receive benefits. The standard elimination period for long-term disability benefits is 90 days. However, policyholders can choose a waiting window as short as 30 days or opt for coverage that kicks after 180 days or up to a year or longer to reduce policy costs.
Most insurance LTD carriers allow a maximum monthly benefit of $15,000 to $30,000. But your payout will be based on a percentage of your pre-disability income. This percentage varies by policy and insurance carrier. But you can typically purchase coverage for up to 60% of your pre-tax income.
Related: Graded vs. Level Premium Disability Insurance: A Breakdown of Costs
Options for long-term disability insurance
You can find long-term disability insurance through several primary ways, including:
- Employer-sponsored group disability plan. LTD might be offered by an employer as a no- or low-cost group benefit.
- Professional association partnership. If you’re a member of a professional association, you might have access to discounts for group or individual disability coverage.
- Guaranteed standard issue (GSI) policy. GSI policies are available through select residency and fellowship programs. These exclusive opportunities provide guaranteed coverage, making it a great option for physicians with pre-existing conditions.
- Individual disability policy. You can choose to purchase individual disability coverage as stand alone income protection or to supplement your existing coverage.
Your level of coverage will depend greatly on the policy’s definition of disability. Most group policies have a weak definition of disability that makes it harder to file a claim. For example, your disability typically needs to prevent you from working in general — whether that’s at a desk or in a lower wage occupation.
But an individual disability policy gives you more flexibility by offering an own-occupation rider that allows you to collect disability income if your condition prevents you from working in your medical or dental specialty. Furthermore, a true own-occupation definition allows you to work in an alternative occupation without risking your disability insurance benefits.
Additionally, you can choose other optional policy riders to customize your coverage based on your financial needs and overall risk tolerance. For example, residents can include a future-purchase option that allows you to increase coverage without undergoing another medical exam.
When does long-term disability coverage make sense?
The most common causes of long-term disability claims include:
- Diseases of the musculoskeletal system and connective tissue, such as soft tissue disorders, muscle disorders and joint disorders.
- Neoplasms, including malignant tumors and melanomas throughout the body.
- Diseases of the nervous system, including migraines, sleep disorders and nerve-related back pain.
- Diseases of the circulatory system, such as heart attack and stroke.
- Injury, poisoning and other consequences of external causes.
However, many medical conditions qualify for long-term disability. Keep in mind that if you have a true own-occupation definition of disability, it’ll be easier to file a claim for injuries or illnesses that you might otherwise overlook.
For example, if you get into a car accident and end up with nerve damage to your hand, you likely won’t be able to perform surgery. But you could probably continue practicing general medicine or choose another field altogether.
What disability insurance do physicians need?
The difference between short-term vs. long-term disability insurance is akin to the difference between renters and homeowners insurance in terms of scale and risk. Why is renters insurance so much less expensive? Because in the worst-case scenario, someone steals your TV or a flood ruins your belongings.
But with homeowners, if your house burns down, the insurance company is on the hook for the cost of replacing it from the ground up, including the housing structure and everything covered inside.
The same applies for short-term vs. long-term disability insurance. Short-term disability policies have a much shorter benefit period, but you’re probably more likely to use it for temporary injuries or illnesses. Whereas, long-term disability insurance provides a much longer payout for more severe, long-term disabilities.
It’s important to know what kind of disability insurance policy and benefits you have, when benefits can be claimed, and your policy’s limitations.
Own-occupation coverage will provide the strongest income protection for physicians and other specialty-specific professions that have dedicated hundreds of thousands of dollars into their education and training.
If your only disability insurance coverage is through your employer, you’ll likely benefit from a supplemental policy that can be customized to fit your needs. SLP Insurance can help evaluate your existing coverage in the context of your occupation and income level, as well as your ideal budget and individual preferences.
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