Strictly speaking, disability insurance is offered by private insurance carriers to employer groups and individuals to replace income in the event of illness or injury. If employed, ask the employer’s Human Resources partner about short-term disability or long-term disability cover plans as part of the benefits package.
Disability insurance can ease the financial burden when a primary wage earner suffers an injury or serious illness. Disability insurance is quite different from workers’ compensation coverage. Disability insurance covers the insured’s illness or injury that occurs any time or any place. The disability doesn’t have to be work-related. There are two basic forms of disability insurance coverage.
Short Term Disability Insurance vs. Long-Term Disability Insurance
Short term disability insurance pays the insured a part of his or her income for a specific (short) period after he or she uses time-off bank days. Depending on the individual plan, short term disability typically pays benefits from nine weeks to 52 weeks, or a full year. Most short term disability insurance plans pay the insured about 50 percent of his or her weekly wage as a benefit.
Long term disability insurance pays a portion of the insured’s income after he or she uses time-off bank days and short-term disability coverage, if any. Depending on the insured’s plan, long term disability may cover the insured for a certain period of time, such as two years, or until the insured reaches a specific cut-off age, such as age 65.
In most states, short term disability insurance isn’t a government benefit. Workers in all states other than California, New York, Rhode Island, New Jersey, and Hawaii must pay premiums for private short term disability insurance and/or long term disability insurance.
If an employer doesn’t offer short term disability or long term disability coverage as an employee benefit, it is possible to purchase an individual policy directly from an insurer or through an insurance agency. An individual policy is more expensive than an employer-subsidized group plan. The coverage period (time) over which the insured is able to receive benefits and the amount of benefits provided depends on the insured’s age and premium costs.
Short Term Disability Coverage
If injured, the insured’s short term disability cover usually pays out the first weekly payment from one day to two weeks after the employee’s disabling injury. In many companies, employees must use time-off bank days before requesting short term disability benefits. Some employers carry two types of short term disability coverage: one for on-the-job injuries and ailments and one for sicknesses or injuries that occur outside of the workplace environment.
When an employee is disabled for a longer period than the short term disability coverage term, the insured’s long term disability insurance (if available) or permanent disability takes its place. Again, the long term disability insurance or permanent disability payments could be trigger from 10 weeks to 53 weeks after the insured’s date of eligibility.
Paying for Short Term Disability Insurance
The short term disability insurance policy may be either an employer or worker-paid benefit. According to the U.S. Bureau of Labor Statistics, more than half of employers defray the costs of short term disability insurance for employees.
The employer usually elects to provide short term disability insurance as a contract agreement with an insurance company or via a self-funded pool established by the employer.
Short Term Disability Coverage Terms
Employers may create a policy regarding paid time-off bank days before requesting short term disability payments for an illness or injury. The employer may also provide documents from the employee’s doctor to verify the ailment or injury. If the employee is absent for a certain period of time, the employer can request as per company policy that the employee see an approved provider or occupational medical center.
When the employee claims short term disability insurance benefits for which he or she is eligible, the employer’s third-party administrator processes claims while the employee is disabled. Employees must report changes in health status to the employer as these occur.
There are a wide range of short term disability insurance plans available. Most require that only employees who work full-time hours, such as at least 30 hours per week, have access to the employer’s short term disability insurance group coverage. The employer may also require a certain waiting period from the hire date, such as 90 or 180 days, until the coverage kicks in.
Short Term Disability Insurance vs. Social Security Disability
Short term disability insurance is an essential financial planning tool for many American workers. It’s especially important for workers who perform physical labor and risk a higher potential of injury on the job to have short term disability insurance. If the worker doesn’t have an emergency cash fund of at least six months’ salary in the bank, short term disability insurance protects against a severe financial shortfall of a few weeks to several months’ duration.
Social Security Disability (SSDI) is administered by the Social Security Administration (SSA). SSDI doesn’t consider the short-term financial needs of injured or ill workers but can assist workers struggling with long-term and permanent disabilities.
Buying short term disability insurance provides a financial safety net for many workers and their dependents. Depending on the insured’s age, short term disability insurance may be very inexpensive or relatively costly to acquire.