Disability insurance protects against lost income due to disability. Though individuals can purchase individual disability insurance, most people with disability insurance receive coverage through their jobs. Insurers for private institutions divide programs into two categories, short-term vs. long-term disability insurance. Their differences are complicated. Keep reading to understand short-term vs. long-term disability insurance for private providers compared to individual and federal options. 

Breaking Down Disability Definitions

Disability insurance policies vary widely in how they define the term “disability.” For short-term disability insurance, the definition typically includes conditions that prevent an employee from performing their job responsibilities temporarily, such as severe injuries, surgeries, or acute medical conditions. Examples include a broken limb, recovery from major surgery, or a long-term illness. 

In contact, long-term disability insurance usually has a stricter definition of a disability. It often covers conditions that prevent an employee from working in any reasonable occupation for which they are qualified due to education, training, or experience. This includes more severe and chronic conditions like permanent disabilities from accidents, progressive diseases such as multiple sclerosis, or long-term mental health disorders.

Short Term Disability Insurance 

Typically, short-term disability insurance policies are private policies brought for employees of a company. Short-term disability insurance provides income to employees disabled due to sickness or accidents after a waiting period. Users of short term disability insurance often include:

• Those with complicated pregnancies. 
• Injuries requiring limited movement. 
• Irregular joint disorders and digestive issues.
• Those seeking early-stage cancer treatment. 

Short-term benefits are expressed by the maximum number of weeks insurance plans cover. Typically, plans cover 50 to 67 percent of an employee’s income for up to 26 weeks. Most use less than 13 weeks of short-term disability benefits. 

For an employee to utilize their short-term disability insurance, they must complete specific steps. 

To obtain short term disability insurance benefits, employees must: 

1. File: Submit the necessary documentation, which usually includes proof of disability from a medical professional.
2. Undergo a waiting period: Most policies include a waiting period, also known as an elimination period, during which the employee must be disabled before benefits start. This period is typically shorter for short-term disability, ranging a few days to two weeks, and longer for long-term disability, often 90 days.

Generally, an employee will be required to satisfy a waiting period before disability benefits will begin being paid. During the waiting period, employees are likely to use sick leave, vacation, or personal leave, if you offer those benefits.

3. Approval and payment: Once approved, benefits are paid out based on the policy’s schedule. Delays can occur in additional information is required or if there is a dispute about the validity of the claim.

Though short-term disability aims to provide benefits for half a year or less, employees must document their need for disability during the designated period. 

Insurers and employers will take steps to limit the costs of their short-term disability benefits, which includes coordination with workers’ compensation. For example, if payments from a short-term disability would be reduced by any amount received from workers’ compensation, insurers or employers may inform employees through written statements. 

Long Term Disability Insurance 

Long-term disability policies begin where short-term policies end, covering employees who become disabled for six months or more. 

Most assume they will never need long-term disability insurance; however, if disabled, long-term disability insurance protects employees until 65 or retirement age and provides 50 percent to 60 percent regular pay, meaning good living standards continue past working age. 

Short-term vs. long-term disability insurance defines disability more rigorously. For long-term disability, you may be unable to perform the tasks of one’s occupation or the functions of any field at all. An employee does not have to be permanently disabled to receive benefits, but most plans require that the employee has to have been a regular, full-time employee for at least a year to be eligible.

Protect Against the Worst: Individual Disability Insurance

Some disabilities require life-long coverage. In these cases, many opt for individual disability insurance instead of plans through employers. Personal disability insurance offers benefits paid until retirement age, a higher percentage of your pre-disability earnings, and is fully portable.

Those with long-term conditions such as musculoskeletal issues, cancer, back disorders unrelated to an injury, cardiovascular disease, nervous system disorders, and behavioral health issues should consider individual plans compared to short-term vs. long-term disability insurance. 

Cost and Premium Details

The cost of disability insurance premiums varies based on factors including but not limited to the employee’s age, salary, occupation, and the policy’s benefit period and coverage scope. Short-term disability insurance typically costs between 1% and 3% of the employee’s annual salary. On the other hand, long-term disability insurance can be more expensive, ranging from 1% to 6% of their annual salary, reflecting the extended coverage period and broader range of covered conditions. 

Employers might choose to cover the entire premium, share the cost with employees, or offer disability insurance as a voluntary benefit entirely paid for by employees. Premium calculations are influenced by the risk level associated with the employee’s job and the health screenings that some policies require.

Social Security Disability

Often, private providers offer short-term vs. long-term disability insurance, though, in some cases, individuals may only qualify for public disability benefits through the Social Security Administration.

The Social Security Administration provides monthly cash disability benefits beginning with the first month in which the disabled worker meets all of the following conditions:

• has a qualifying disability as defined by the Social Security Administration (i.e., is unable to perform any job for which the worker is reasonably qualified)
• has applied for disabled worker’s benefits
• has met the requirements for insured status
• has completed a five-calendar-month waiting period or is exempted from this requirement
• has not attained age 65

If employees return to work or meet other program-ending conditions, Social Security disability ends.

Examples of Benefit Calculation

Imagine an employee earns $50,000 annually and becomes disabled. Under a short term disability policy covering 60% of their income for up to 26 weeks, the benefit would be $30,000 annually, or $576 per week before taxes. When it comes to long term disability, if the policy covers up to 60% of income up to age 65, and the employee is 40, they would receive 60% of their income annually – $30,000 – until they turn 65, adjusted based on the terms of the policy for living increases and other necessary factors. 

Integrating Disability Benefits with Other Benefits

Disability insurance often coordinates with other employee benefits. For example, if an employee receives short-term disability payments, they might also be eligible for health insurance continuation under the employer’s plan. Coordination of benefits rules can dictate which policy pays first in the event an employee is eligible for multiple benefits. For instance, if an employee receives workers’ compensation, those benefits could be deducted from the payout of hte disability insurance. 

Understanding how these benefits interact with one another is crucial for maximizing the support available to employee during their period of disability, ensuring they receive all entitled benefits efficiently and without unnecessary overlap.

Consider Disability Benefits with Canal HR

Employers offering private disability benefits to their employees hire and retain high-quality workers. According to a Society for Human Resources Management survey, nearly one-third of employees say that their benefits package at their current workplace would be their primary reason for going on the job hunt within the next 12 months.

Have a private business looking to implement or improve disability benefits? Leave it to the professionals at Canal HR, a professional employer organization in the US Gulf South. Dealing with disability benefits, whether short-term vs. long-term disability insurance or individual plans, can be confusing. Contact us today to learn more about how Canal HR can handle your employees’ disability benefits to keep your organization going about its business.