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- Many employers offer short-term disability insurance, but this coverage is usually not sufficient.
- Benefit payments usually last three months and the money can be taxed as income.
- Supplement short-term disability coverage with an individual long-term disability policy.
- Check out the insider’s guide to the best disability insurance companies.
Buying disability insurance doesn’t sound like fun, but it is one of the smartest ways to protect yourself and your family financially. Disability insurance is like insurance for your salary if you are unable to work.
According to The life of the guardian, “More than one in four of today’s 20s can expect to be out of work for at least a year due to a crippling illness before they retire.” Illness causes 90% of disabilities and injuries account for the remaining 10%.
What is short term disability insurance?
You’ve probably heard of Short Term Disability (STI) through your employer. Short-term disability insurance covers loss of income for about three months due to illness, injury or pregnancy and recovery after childbirth. California, Hawaii, New Jersey, New York, Rhode Island, and Puerto Rico require employers to provide some form of short-term disability insurance.
Employer-provided short-term disability insurance can be offered as part of your benefit package at little or no cost. These policies are “guaranteed questions”, so you don’t need to have a medical exam to get coverage.
The short-term disability insurance you get on the job can replace Up to 80% of your gross income, but it’s usually less – around 50-60%. Payments typically only last between three and six months, usually only three months. Additionally, you may be taxed for disability income if your employer has covered some or all of the premium. If you leave the business, you will lose your benefits.
While employer-provided disability insurance is a nice benefit, coverage is obviously limited. If you are financially supporting someone other than yourself – or if your regular expenses take up most of your salary – you probably also need a private disability insurance policy.
What is a short term disability?
Each short term disability insurance policy will describe what it specifically covers, but in general any illness or injury that prevents you from doing your job will be covered.
According to Unum Insurance, the top five reasons people apply for short-term disability are:
- maternity leave,
- joint disorders,
- back problems and
- digestive disorders.
Short term disability insurance vs long term disability insurance
Don’t assume that your employer-sponsored short-term disability insurance policy is sufficient to replace your income. Take a few minutes to read the details of the coverage and determine if you need more.
A long-term disability insurance policy usually doesn’t come into effect until at least 90 days after you become disabled, known as the waiting or waiting period. Long-term disability effectively picks up where your short-term policy left off.
Who needs disability insurance?
When determining if you need disability insurance, the question to consider is: if you get sick or hurt, how will you earn income to pay your bills? If you don’t know, you need disability insurance.
Life Happens, a non-profit life insurance education agency, offers a free disability insurance calculator.