Disability insurance is a subject not pleasant to talk about because no one wants to think that something bad can happen to them. Unfortunately, bad things do happen, and we need to be covered by both health and disability insurance.
The statistics say that more than 25% of people entering the workforce today will have at least one year off work due to disability until they reach retirement.
There are two main types of disability insurance – short-term and long-term. The main difference between short term and long term disability is the time period they cover, but also their purpose. The short-term disability is intended for people who are currently unable to go back to their job. In contrast, long-term insurance is intended for persons unable to perform almost any kind of work.
How much do they pay?
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The amount differs between countries, but for instance, the short-term disability (STD) in the US pays anywhere from 40% to 60% of the employee's gross income.
The long-term disability payouts depend on the provider. In the US, the social security disability benefits are much lower than those provided by private companies. The first one is $1,197 per month, on average. The latter is 60% to 80% of the average earnings before the disability started.
How much do they last?
The benefit periods vary depending on the provider, but the average for a short-term disability policy is three to six months.
On the other hand, long-term policies can pay for one, two, ten years, and sometimes even until retirement. As for the average, the Council for Disability Awareness stated that the average disability claim lasts for a little less than three years.
What disorders and conditions are considered a disability?
Many illnesses are deemed as disabilities. When it comes to neurological disorders, it's epilepsy, multiple sclerosis, cerebral palsy, Parkinson's disease, etc. Blood disorders like sickle cell disease and hemophilia are also considered to be disabilities, and so are mental disorders like autism, anxiety, depression, schizophrenia, etc.
The elimination period
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This is a period between the time when the disability starts and when the person starts receiving benefits. When it comes to short-term disability, this period is not very long, usually up to 14 days. But since the long-term requires a lot more proof of disability, which means more doctors' appointments and tests, this period can extend up to 90 days. That's why it's important to have some savings until the paychecks start to arrive.
Do you need both insurance policies?
They are designed to complement each other. If you have a large savings fund and can cover the expenses you will have during a short absence from work, then you might not need short-term disability insurance. But when it comes to long-term disability, no one is that rich. The percentage of people who have that much money around to cover ten years without income comes down to statistical error. So, to conclude, long-term insurance is a must. In many states, people don't have this dilemma because both short and long-term disability insurances are mandatory.
Who provides the short and long-term disability insurance?
Usually, the employer is responsible for providing disability insurance for the employees, and it's typically free or at a highly discounted rate. But if you are self-employed, then you should take care of that on your own. Unfortunately, self-employed people and freelancers don't often think about this kind of insurance, and it only comes to their mind when they actually need it.
Each disability insurance policy includes information such as:
- How much will the beneficiary receive
- The maximum amount of money
- The precise definition of disability
- How long will the benefits last
- Any limitations and exclusions
- How much will the extra coverage cost
Important to know
Some employers do not provide short-term disability benefits, and their employees have to rely on Employment Insurance (EI) disability benefits instead. If you are not sure about your coverage, consult with your employer to find out more.
Although the two disability insurances' main differences are pretty much easy to understand from their names, some details may require additional attention and should be looked into, just to know what your options are. Disability insurance is something we all hope we'll never use, but it's good to know that it's there.