Injuries are inevitable, but what happens if you become injured and cannot work until you recover? You might miss payments, get behind on bills, and damage your credit history.
Thankfully, there are things that you can do to protect yourself and your family should an unfortunate injury occur.
Short-term disability insurance will replace a portion of your income while you recover so that you can still meet your financial obligations. The amount you receive, when you begin receiving benefits, and how long you can receive those benefits all depend on the specifics of your policy.
So, what is short-term disability, and how does it work? Keep reading below as we explain everything you need to know about short-term disability insurance policies.
What Is Short-Term Disability Insurance?
Short-term disability insurance replaces part of your income if you cannot work due to a disability. These policies are managed by private insurance companies, and each company sets its own rules regarding defining a disability.
Most short-term disability policies also have specific exclusions that prevent you from collecting disability benefits if your disability claim is related to a particular action or condition.
How Does Short-Term Disability Insurance Work?
You’re probably wondering, “How does short-term disability work?” Short-term disability (STD) works much the same way that long-term disability insurance works. If you become injured and unable to work, then the STD policy pays you disability benefits to help cover your financial obligations.
Short-term disability insurance can be purchased directly from private insurance companies or through a group plan usually provided through your employer. Many employers offer basic short-term disability insurance at no cost, though you may purchase additional coverage typically for a small fee.
Some states, like California, New York, and New Jersey, provide State Disability Insurance (SDI) programs to workers. These programs provide certain protections for full-time employees who experience a disability. The programs are generally funded through automatic payroll deductions, just like other taxes, and the benefit amounts are around 50% of your income. Most of these states allow a maximum benefit period of 6 months.
There are some differences between short-term and long-term disability insurance coverage.
The first and most obvious is how long you can receive these benefits. As the name implies, short-term disability insurance is meant to provide benefits for a short period of time while you recover from an injury. Most short-term policies only offer a benefit period of 3 to 6 months, although usually never longer than one year. Short-term policies are meant to provide benefits for disabilities from which you can pretty quickly recover. Some examples might be a broken bone, surgery, or even pregnancy.
With more severe injuries, your short-term insurance can provide benefits during the elimination period before your long-term disability begins to pay benefits.
In most cases, short-term disability pays less than long-term disability. On average, a short-term policy will replace around 80% of your income. Depending on your policy, that number can range from 70% to 100%.
Finally, short-term disability policies have an elimination or waiting period before you start receiving benefits, but it is usually quite short. On average, the waiting period is about 14 days. It could be as brief as seven days or as long as 30 days.
KEY TAKEAWAYS
- Short-term disability insurance replaces part of your income if you cannot work due to a disability.
- The average benefit from short-term disability is around 80% of your income, the benefit ranges form 70% to 100% of income depending on your policy.
- Short-term disability benefits typically only last three to six months.
What Qualifies For Short-Term Disability?
Now that you know how short-term disability works, let’s discuss what it covers.
Short-term disability benefits cover temporary disabilities from which you should either recover and return to work or switch to coverage under your long-term disability policy.
The details of your short-term disability coverage are typically spelled out very plainly in the policy you receive from your insurer. Your plan will clearly state the definition of disability, which will tell you exactly what is covered under your plan.
Unlike Social Security disability, your insurance company, not the Social Security Administration, decides whether or not you qualify for disability benefits.
In most cases, the disabilities covered by short-term plans are of shorter duration. They might be things like surgery with a longer recovery time, broken bones, pregnancy, or even mental health issues.
In some cases, you might even be able to qualify using ADHD. ADHD is considered a disability, but it requires your medical evidence to meet strict rules to qualify you for benefits.
You will need to make sure that you have medical evidence and proper documentation of your disability when you file a claim with your insurance company so that you can get your disability payments approved without any issues.
In general, short-term disability will not cover pre-existing conditions.
Also, do not confuse short-term disability insurance with workers’ compensation. The two are similar and cover many of the same types of injuries.
However, workers’ comp specifically covers injuries that occur on the job, while STD insurance covers injuries that happen while not at work.
Along the same lines, there is one major difference in eligibility between STD benefits and Social Security disability benefits: the length of time the disability is expected to last.
To qualify for SSDI, your injury must have lasted or be expected to last at least 12 months. Typically, short-term disability benefits only last around 6 months. SSDI and SSI are quite similar in qualifications from a disability standpoint, but the big difference between the two is the work requirement of SSDI and limited income requirement of SSI.
Must read articles related to Disability
- A complete guide on “How to Apply for Disability“.
- Learn more about what conditions qualify for disability.
- Check out the Common Reasons Why Short-Term Disability Can Be Denied.
- You may be interested in how long-term disability insurance works.
- You may be entitled to SSDI back payments…read “How to track my disability back pay“.
Is Short-Term Disability Insurance Taxable?
In general, this insurance is not taxable. As long as you pay your policy premiums with after-tax dollars, the benefits you receive will not be taxed. This is similar to life insurance and long-term disability plans.
However, this differs from Social Security Disability insurance benefits, which might be taxable. Whether or not you pay taxes on your SSDI benefits depends on your total income. If your income is above the threshold, you could be taxed on as much as 85% of your total SSDI benefits.
Many people purchase short-term disability policies through a group plan with their employer. In this case, the premiums are often paid through payroll deductions using pre-tax dollars or directly from the employer. In this case, the benefits you receive would be taxable.
If you receive benefits from your plan, you should consult a tax professional to fully understand how the benefits will be treated for tax purposes. If you are already in a financial bind due to your injury, you do not want to put yourself in for a big surprise when tax time rolls around.
How Much Does Short-Term Disability Insurance Pay?
The amount of money you receive for your disability claim depends on what your policy contract states. Your benefit amount will be plainly explained in your policy, and you should refer to this document with any questions.
If you have a group plan through your employer, you can always take your questions to your Human Resources department. They should be able to answer most of your questions, and if they cannot answer a specific question, they can direct you to the appropriate contact at the insurance provider who can help you.
- Short-term disability will pay benefits based on a portion of your income. In general, short-term disability will pay you approximately 80% of your normal salary. Some plans might pay as little as 50%, while the most you will see from a plan is 100%.
- In addition to these amounts, your plan also has a maximum benefit that it will pay. Once it has reached this maximum, the plan will no longer pay you monthly benefits even if you are still within the benefit period.
In contrast, long-term disability benefits usually average about 60% of your income and can last for 5 to 10 years or even for life in some cases.
TIP
To protect yourself from potential hardship due to illness or injury, you should consider getting both short-term disability and long-term disability insurance.
What Does Short-Term Disability Insurance Cover?
It sounds like we are saying this repeatedly, but your coverage depends on your specific policy details. Your policy will clearly explain the definition of disability, and this definition will be used when determining whether a particular injury or medical condition qualifies. The types of situations that are generally covered are shorter in nature. Some examples include:
- Pregnancy
- Surgery with extended recovery time
- Short-term back problems requiring rehab
- Broken bones that prevent you from working
Sometimes, your short-term plan will cover disabilities expected to last longer as a stop-gap until your SSDI benefits or long-term disability plan kicks in.
These might be things like:
- Cancer
- Permanent back injuries or
- Extreme mental illness.
However, you will always be required to present the proper medical records and evidence showing that you meet the policy’s definition of disability before your claim will be approved. If you ever have any questions about whether your condition will qualify, you can always call your plan administrator and ask. They can advise whether you will be covered and what documentation will be required to substantiate your claim.
You should note that in some cases, you might be required to prove that a certain portion of your income has been lost due to your illness or disability.
In addition, not all surgical procedures are covered by your plan. The procedure must be medically necessary, as most cosmetic surgeries will be excluded from coverage. Weight-loss surgery coverage varies by plan, and organ donation is usually covered by most plans.
We have discussed what short-term disability covers, so what is not covered by your policy?
Your specific policy might exclude certain items, but some common things are not covered by short-term disability insurance. These exclusions are usually spelled out directly in your policy. They often include things like:
- Commission of a crime
- Self-inflicted injuries done intentionally
- Injury or illness that should be covered by workers’ compensation
- Acts of war
- Loss of professional license
In addition to the specific exclusions your policy may spell out, most policies do not cover pre-existing conditions.
This could be anything from diabetes to cancer, but you should not count on your carrier to cover your pre-existing condition. Similarly, these policies do not pay benefits to someone who needs to take leave from work to care for a sick child or family member. The insured must be the person who suffers the injury or illness.
While we are on the topic of exclusions and things that are not covered, you should also know that many group plans require you to work for your employer for a certain period of time before your coverage begins. If you fall ill during your second week of employment, you might not be eligible for those benefits.
Even if you meet the employment length requirement, most employers require you to exhaust all your vacation and paid time off before you can use short-term disability benefits.
How to Apply For Short-Term Disability Benefits
If you have experienced an illness or injury that qualifies you for benefits, call your insurance company.
Most companies allow you to start a claim over the phone, and they can walk you through the documentation needed to get your claim approved and paid.
In some cases, you can start your claim before you leave work. For instance, you might have an upcoming surgery planned that you know will require 6 weeks of intense recovery. Go ahead and let your insurance company know about it and get that claim started. This way, you can process the documentation more quickly and start receiving your payments as soon as the elimination period ends.
How Much Does Short-Term Disability Insurance Cost
The amount of the premium you will pay for STD insurance varies based on several factors. Short-term policies are usually cheaper, and many are guaranteed-issue. This means they do not need to undergo the full underwriting process like a long-term insurance policy.
Long-term disability insurance policies must go through the full underwriting process because these policies might have to pay benefits for a long period of time. If you are diagnosed with cancer, your policy might have to pay monthly benefits to you for years.
On the other hand, short-term disability insurance usually only pays benefits for about 6 months. For this reason, it is much easier to get coverage, and the premiums are generally about 1% to 3% of your salary. Most of these policies only require answering a few questions about your health and lifestyle. Some do not even need this much as they are automatically issued upon premium payment.
While the average cost of a policy is 1% to 3% of your salary, some factors can affect this cost—particularly if your carrier requires more underwriting than average.
Factors that would affect the cost of your premium include:
- Your annual salary
- Your occupation
- Your health and medical history
- Your hobbies.
The more dangerous your lifestyle, the higher your premiums will be. Much like life insurance or long-term disability insurance, someone who enjoys rock climbing and hang gliding will pay higher premiums than someone who enjoys reading and gardening. High-risk activities make it more likely that the insurer will have to pay a claim; therefore, they need to charge higher premiums to offset that risk.
What If You Are Not Ready to Return to Work
So, what happens if you reach your maximum benefit period and cannot return to work? Thankfully, you are not just left out in the cold with no options.
You have a few things that you can do. Let’s take a look at an example. Suppose that you have a broken arm that prevents you from working at your job as a mechanic. Your doctor tells you that you will be out for 6 weeks, so you apply for short-term disability benefits and begin receiving monthly payments after your elimination period expires.
Now, imagine that you experience complications from the break, and you require surgery to repair the broken bone. The surgery does not go well, and now you need a second surgery to fix things fully. You quickly surpassed your six-week mark; it has now been 6 months since you could work. The doctor advises that it will be another 3-4 months before you will be fully healed and able to work again. What do you do?
If you have long-term disability insurance, the simplest thing to do is file a claim for your long-term benefits. In most cases, it is fairly simple to transition from short-term to long-term benefits. Some insurance companies might require you to resubmit documentation and medical records, but you should have no problem getting approved for those benefits.
In the rare occurrence that your short-term claim turns into a disability that will prevent you from returning to any work in the future, you should go ahead and apply for Social Security Disability benefits.
Your long-term policy usually only requires that you be unable to return to your job, while SSDI benefits require that you be unable to return to work of any kind.
It is possible to receive both SSDI benefits and long-term disability benefits. In that case, your long-term carrier will typically pay you the difference between your SSDI benefit and the benefit amount in your long-term policy.
The Bottom Line
No one wants to experience a disability, but knowing that you and your family are protected financially can make things a little easier.
Short-term disability insurance is one way to help protect yourself, and you should combine it with LTD insurance and life insurance to get more complete coverage and protection.
Short-term disability insurance covers less severe illnesses and injuries from which you are expected to recover within 6 months or less. What constitutes a disability and how much you will receive will depend on the specifics of your policy.
Now that you have a good understanding of how STD insurance works, you should feel more comfortable shopping around and selecting the right plan for your situation.
Frequently Asked Questions
Absolutely! Both types of insurance are meant to cover different things, and you should not select one in lieu of the other.
If you only choose short-term disability, then you may be left scrambling should you experience an injury or illness lasting longer than six months.
On the contrary, selecting only long-term disability insurance is not a good idea either. Most of those policies have a waiting period of about 6 months, so you would be without income for quite a long time before any benefits would begin.
Having both types of coverage should keep you protected regardless of the type of injury you might suffer. Many times, they even work in tandem with each other. You might start out receiving short-term disability benefits and then transition over to your long-term benefits if the illness continues for a longer period of time.
There is no standard list of illnesses that qualify for short-term disability.
The answer really depends on the language in your policy. Your policy will explain the definition of a disability, and if the illness fits within this definition, then it will be covered. In fact, it does not necessarily have to be an illness in order to qualify for disability benefits.
Many policies will pay claims for pregnancy and other things that prevent you from being able to work. Surgeries and other medical procedures can qualify, although purely cosmetic procedures will typically not be approved.
You might consider looking for a standalone policy that includes mental condition benefits.
This answer depends on the specifics of your policy. Sometimes, the waiting period may be as short as five days, but the average is between seven and fourteen days.
Typically, the elimination period for a short-term policy is not longer than 30 days. Having a waiting period longer than that would effectively defeat the purpose of the insurance itself. By its nature, a short-term disability only lasts for a limited amount of time, so requiring you to wait more than 30 days to receive benefits would mean that you are almost always back to work before your benefits begin.
You should read your policy contract to find your specific waiting period, which usually lasts 7-14 days.
Cue the same old story – it depends on what your policy says. One certain thing is that your benefits will end when your disability ends, and you can return to work.
If your disability continues, most short-term disability benefits last for about 6 months. Some can be as short as 3 months, while others might last up to a year.
The length of your benefits depends on the maximum benefit period listed in your contract. If you are unsure how long this is, you should contact your insurance carrier to find out.
FMLA, or the Family and Medical Leave Act, protects employees who must miss time from work because of an injury or illness.
There are a few major differences between FMLA and short-term disability.
- First, FMLA is not paid. You will not receive compensation while on FMLA leave unless you have a short-term disability policy that pays benefits.
- Next, under FMLA, the illness can even occur to someone in your immediate family if you are needed to help care for them.
The law states that employers must allow you to take up to 12 weeks of unpaid leave and that your job will be preserved while on leave.
To qualify for FMLA, you must have been an employee of the company for at least the past 12 months and worked 1,250 hours, and the company itself must have at least 50 employees.
Smaller companies are not required to provide this leave to their employees.
Illnesses that qualify you for either benefit are similar as they are expected to be short-term in nature. Once you have recovered, you are expected to return to your normal job.
You can find a Social Security Administration office near you by using our SSA office locator and searching for your closest location.
