Short Term vs. Long Term Disability Insurance


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Disability insurance is a special type of insurance that protects an employee’s ability to earn a paycheck when they experience a serious illness or injury. Disability insurance is not designed to provide benefits if someone misses a week of work due to the flu. Instead, it provides coverage for conditions that would keep an employee from working for extended periods of time. Disability insurance is generally categorized as short-term and long-term.

What is short-term disability?

Short-term disability is voluntary insurance that replaces part or all of an employee's income in the event of a temporary disability. Typically, this insurance policy is paid in full or in part by the employer, and the employee must be unable to perform their normal work duties, due to illness or injury, to qualify for benefits under the policy.

Although this coverage may seem similar to workers' compensation coverage, the two coverage types have very different applications. Workers' compensation provides coverage when the illness or injury occurred at work or as a direct result of work activities, whereas short-term disability will provide coverage even when the employee is injured outside the workplace.

To qualify for short-term disability benefits, an employee must be unable to do their job, as deemed by a medical professional. Medical conditions that prevent an employee from working for several weeks to months, such as pregnancy, surgery rehabilitation, or severe illness, can qualify to receive benefits.

While benefit periods may vary across different providers, most short-term disability policies provide benefits for three to six months. Some policies, especially those connected with a long-term disability policy, may provide short-term coverage for a full year.

What is long-term disability?

Long-term disability is an insurance plan that often works in tandem with short-term disability to provide income for long-term illnesses and injuries. Once short-term disability benefits are exhausted, a long-term disability policy continues to provide the employee with income until they can return to work.

The qualifications for long-term disability are usually more stringent than those for short-term disability. With short-term disability, benefits can be awarded if the employee is unable to do their job. With long-term disability, benefits will typically only be awarded if the employee is unable to do any job. What constitutes a qualifying event will be specified in the policy, so it is important to understand when benefits may (or may not) apply before accepting a long-term disability policy.

Qualifying events may include chronic pain, cancer treatments, or debilitating illness or injury lasting more than 26 weeks. If an employee could qualify for another form of income replacement, such as Social Security Disability Insurance, the long-term disability policy will no longer provide benefits.

Once long-term disability benefits have been approved, an employee can continue to receive benefits for the length of the policy term or until they return to work. Most long-term disability plans provide coverage for 36 months, although some plans can provide coverage for up to 10 years or even for the life of the policyholder.

Should you or your clients offer disability insurance?

For comprehensive protection, employers may consider offering a combination of both short-term and long-term disability insurance to employees. These policies are an important complement to any group health insurance plan and help to minimize the impact of debilitating illnesses and injuries on both employees and the business. To get more information on disability insurance, you can read our full article.

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Source: Paychex

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