Disability insurance is an insurance policy that covers part of a person’s lost income while that person is unable to work due to illness or injury.
Some disability insurance policies cover workers for a short period of a few months, while others provide stable benefits for decades.
The decision to obtain short-term, long-term, or both types of disability insurance depends on the individual worker’s needs, expectations, and budget.
PROS AND CONS OF SHORT-TERM DISABILITY INSURANCE
Short-term disability insurance is for people who are unable to work for short periods of time. Although some short-term policies can last up to two years, the typical policy lasts between three and six months.
Because the time these policies pay benefits is short, short-term disability insurance policies are generally the most affordable options.
In addition, they tend to start benefits immediately or within two weeks when the policyholder becomes disabled, and typically pay close to 100 percent of a worker’s salary for the first benefit payments.
Short-term disability insurance policies, however, can have drawbacks. Benefits run out in a few months, leaving people with long-term disabilities on their own.
Also, short-term policies generally have fewer options and protections for payments in certain circumstances, such as the death of the policyholder or when a policyholder becomes disabled near retirement age.
Despite these trade-offs, short-term disability insurance may be the best option if you:
You already have long-term disability coverage through an employer
Have limited savings to cover the first few months of a disability; or they prefer lower monthly payments in exchange for a shorter term of benefit payments.
PROS AND CONS OF LONG-TERM DISABILITY INSURANCE
Long-term disability insurance provides monthly payments in the event of a disability that lasts six months or more, and some provide benefits until the policyholder reaches age 75 or older.
The main advantage of long-term disability insurance is the peace of mind that comes from knowing that benefits of up to 70 percent of the policyholder’s salary will continue for the duration of the disability.
Additionally, long-term policies typically allow for more options, such as coverage for hospital stays and the addition of supplemental insurance to increase monthly payments.
However, the main drawback of long-term disability insurance is that long-term policies cost much more than short-term insurance.
Also, long-term policies typically have a waiting period of three to six months or more before the insurance company begins paying benefits, leaving people with disabilities to pay their own expenses for the first few months of a policy. disability.
Finally, the payment plans of some long-term disability policies may change after two years of continuous disability.
Because of these pros and cons, long-term disability insurance is generally better for people who have savings or other insurance to cover the first few months of their disability, and workers who can pay higher premiums for long-term benefits. term.
WHICH TO CHOOSE? SHORT TERM OR LONG TERM INSURANCE?
Since long-term and short-term disability insurance policies provide different types of coverage, workers who can afford it can purchase both to be fully covered in the event of a disability.
However, this is often not an option, given the high costs that are usually involved.
People who can afford only one type of insurance coverage often opt for the long term and rely on their savings to cover the first few months of a disability. The following guides can help you evaluate the different aspects of short-term and long-term disability insurance policies to determine which one is best for you.
LONG TERM INSURANCE – QUICK REFERENCE
- Duration of benefits: up to age 75.
- Waiting period before benefits start: Up to two years, but generally three to six months.
- Payment amount: up to 70 percent of salary.
SHORT TERM DISABILITY INSURANCE: QUICK REFERENCE.
- Short-term benefits: up to two years.
- Waiting Period Before Benefits Begin: Zero to 14 weeks.
- Number of payments: Usually 80 percent or more of salary for the first few payments, then lower for the remaining payments.
GET THE BEST LEGAL HELP FOR YOUR DISABILITY CLAIM
With so many different types of disability insurance, options, and various parties involved, the process can be overwhelming for anyone without a law degree.
Have additional questions?
Contact a disability attorney for more information about private disability insurance and an ERISA attorney if you have questions about employer-sponsored disability benefits.
