Injuries are inevitable, but what happens if you become injured and you are unable to work until you recover? You might miss payments, get behind on bills, and do some real damage to your credit history. Thankfully, there are things that you can do to protect you and your family should an unfortunate injury occur. Short-term disability insurance will replace a portion of your income during the time you are recovering 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.
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 provide 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 in the state. 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 the amount of time that 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 provide 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, a surgery, or even pregnancy. With more severe injuries, your short-term insurance can provide benefits during the elimination period before which 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 60% of your income. That number can range anywhere from 40% to 70% depending on your policy. Finally, short-term disability policies do have an elimination period 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 short as seven days or as long as 30 days.
What Qualifies For Short-Term Disability?
Now that you know how short-term disability works, let’s discuss exactly what all it covers. Short-term disability benefits are meant to cover temporary disabilities from which you should either recover and return to work or switch over 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 that you receive from your insurer. You plan will clearly state the definition of disability, and this will tell you exactly what is covered under your plan. Unlike Social Security disability, your insurance company, and 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 a 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 just 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 do have similarities, and they would 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 – that is 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.
Is Short-Term Disability Insurance Taxable?
In general, no, this insurance is not taxable. As long as you pay your policy premiums with after-tax dollars, then the benefits that 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. You could be taxed on as much as 85% of your total SSDI benefits if your income is above the threshold.
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 are paid directly from the employer. In this case, the benefits you receive would be taxable. If you receive benefits from your plan, you should always 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 60% of your normal salary. Some plans might pay as little as 40% while the most you will see from your plan is probably 70%. In addition to these amounts, your plan also has a maximum benefit that it will pay. Once it has reached this maximum, then 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 80% of your income and can last for 5 to 10 years or even for life in some cases.
What Does Short-Term Disability Insurance Cover?
It sounds like we are saying this over and over again, but your coverage really depends on your specific policy details. Your policy will clearly explain the definition of disability, and this definition will be used when making a determination whether a specific injury or medical condition qualifies. The types of conditions that are generally covered are shorter in nature. Some examples include:
- Surgery with extended recovery time
- Short-term back problems requiring rehab
- Broken bones that prevent you from working
In some cases, your short-term plan will cover disabilities that are 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 even 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 there are ever 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, probably not all surgical procedures are covered under your plan. The procedure must be medically necessary as most purely 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 talked about the things that short-term disability covers, so what is not covered by your policy? Your specific policy might exclude certain items, but there are some common things that 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 that your policy may spell out, most policies also 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 a certain period of time before your coverage begins. If you fall ill your second week into your employment, you might not be eligible for those benefits yet. Even if you do meet the employment length requirement, most employers require you to exhaust all your vacation and paid time off before using short-term disability benefits.
How to Apply For Short-Term Disability Benefits
If you have experienced an illness or injury that you believe qualifies you for benefits, then go ahead and give your insurance company a call. You can start a claim over the phone with most companies, and they can walk you through the documentation that you will need to get your claim approved and paid. In some cases, you can go ahead and 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 get the documentation processed more quickly and start receiving your payments as soon as the elimination period is over.
How Much Does Short-Term Disability Insurance Cost
The amount of the premium that you will pay for STD insurance varies based on several factors. Short-term policies are usually cheaper and many are guaranteed-issue. This means that they do not need to go through 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 usually about 1% to 3% of your salary. Most of these policies only require you to answer a few questions about your health and lifestyle. Some do not even require this much as they are automatically issued upon payment of the premium.
While the average cost of a policy is 1% to 3% of your salary, there are some factors that 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, and 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 the person 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 you are still unable to 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 fully repair things. You quickly surpassed your six week mark, and it has now been 6 months since you were able to 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 go ahead and 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 type of 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 amount of the benefit in your long-term policy.
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 is meant to cover less severe illnesses and injuries from which you are expected to recover within 6 months or less. Exactly what constitutes a disability and how much you will receive 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
Do I need both short-term and long-term disability insurance?
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.
What illness qualifies for short-term disability?
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.
How long do you have to wait for short-term disability?
Again, this answer depends on the specifics of your policy. In some cases, the waiting period may be as short as five days, although the average is between seven to 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 ever begin. You should read your policy contract to find your specific waiting period, but it is like somewhere between 7-14 days.
What is the difference between FMLA and short-term disability?
FMLA, or the Family and Medical Leave Act, provides protection to 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 any 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 you are on leave.
In order 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. It is expected that you will return to work at your normal job once you have recovered.
When do short-term disability benefits end?
Cue the same old story – it depends on what your policy says. One thing that is for certain – 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 that is listed in your contract. If you are unsure how long this is, then you should contact your insurance carrier to find the answer.