Short-Term vs Long-Term Disability Insurance: Which is Right for You?
Disability insurance is a must-have, as it provides an invaluable financial safety net if you’re ever unable to work due to injury or illness. Whether you’ve suffered a minor short-term injury like tendonitis or a long-term condition like cancer, this coverage provides cash that you can use to support yourself and maintain your lifestyle while you recover.
If you’ve started shopping for a disability insurance policy, you may have trouble deciding whether short-term or long-term disability insurance is right for you. To help you find the best option for your needs, let’s take a look at the key differences between short-term and long-term disability insurance.
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What is Disability Insurance?
Disability insurance offers income protection for workers that become too ill or disabled to work.
If you become disabled due to a covered illness or injury, your insurance policy will pay benefits directly to you. You can use this money to cover monthly living expenses, including mortgage payments, car payments, groceries, and anything else that you deem necessary.
Every disability insurance policy provides benefits based on a percentage of your regular income for a specified period of time. However, the percentage and term depend on what type of disability insurance you purchase.
Short-Term Disability Insurance
Short-term disability insurance provides income protection for employees that are forced to miss work due to short-term illnesses or injuries.
Some types of short-term illnesses and injuries include:
- Pregnancy
- Tendonitis
- Carpal tunnel syndrome
- Surgery recovery
- Car accidents
- And more
Make sure to review your policy to learn what injuries may or may not be covered.
Long-Term Disability Insurance
Long-term disability insurance works the same as short-term disability policies, but instead of providing short-term financial protection, it’s designed to provide benefits to workers that suffer long-term injuries or illnesses.
Some types of long-term illnesses and injuries include:
- Pregnancy complications
- Cancer
- Heart attack
- Stroke
- Severe back problems
Conditions like these may force you to miss work for several years, in which case, short-term insurance would not offer sufficient coverage.
Short-Term vs. Long-Term Disability Insurance
When deciding which type of insurance is right for you, there are a few key factors to consider:
- Coverage terms
- Amount of benefits
- Policy cost
- Elimination periods
Here’s everything you need to know about the key differences between short-term and long-term disability insurance.
Benefit Periods
Depending on the nature of your injury or illness, you may need financial assistance anywhere from a few months to several years.
Short-term disability policies typically provide benefits for three to six months, depending on your policy. This makes it suitable only for relatively minor injuries that don’t require extensive treatment or recovery times.
Long-term insurance, on the other hand, typically provides benefits for 2, 5, or 10 years. In some cases, it may even provide benefits until you reach retirement age.
Coverage Amount
One of the most important factors to consider is how much cash your policy will provide.
Short-term policies may offer up to 80% of your gross monthly income. This allows policyholders to maintain more or less the same lifestyle following their disability.
Long-term policies typically offer a smaller percentage, usually anywhere from 40% to 60%. While the cash benefit may be less than what’s offered by short-term policies, long-term insurance provides benefits for a much longer period of time.
To determine how much coverage is enough for you, calculate your monthly expenses, including any additional medical expenses that you may have to pay for.
Keep in mind that income provided by disability insurance may or may not be taxable depending on whether it’s funded with pre-tax or post-tax income.
Cost
The cost of both short-term and long-term disability insurance is heavily dependent on several factors, including:
- Age
- Occupation
- Health
- Lifestyle
- Location
- Coverage length
- Benefit amount
While long-term policies are often more expensive, they provide more value due to the extra protection they offer.
Elimination Period
A policy’s elimination period is the period of time you must wait before you start receiving benefits after becoming disabled.
Short-term disability benefits typically kick in in 14 days or less, while long-term policies often don’t start paying out benefits for 90 days. However, this period may be longer or shorter depending on your specific policy.
Can You Purchase Both Types of Coverage?
Yes, you can purchase both short-term and long-term insurance, and doing so offers several benefits.
Short-term disability can help you pay for living expenses immediately following an injury before your long-term policy’s elimination period is over. If your injury requires you to miss work for longer than six months, your long-term policy will kick in to help you continue paying for necessary expenses.
Carrying both types of policies can be expensive, however. As such, many individuals purchase long-term disability insurance and take advantage of subsidized short-term disability insurance policies through their employers. Doing this can grant you the benefits of both types of policies without having to pay the full premiums for both.
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We hope you have a better idea of whether short-term or long-term disability insurance is right for you. Both short-term and long-term insurance helps disabled workers support themselves while they recover from their injuries and illnesses, but depending on your circumstances, you may find that you benefit more from one type than the other.
At KSA Insurance, we work with most major insurance carriers to help our clients find affordable disability insurance policies that offer invaluable financial protection and peace of mind. Contact KSA Insurance today to get a quote and learn more about disability insurance.