Long-Term Vs. Short Term Disability: Understanding the Differences

In the world of insurance, where you purchase protection plans hoping you never actually need to use them, disability insurance is one of those policies that could end up being the most valuable should you ever need it. Disability insurance exists to ensure your basic financial needs are met, including the funds for supplemental care, should something happen to you that inhibits your ability to support you and family.

Many families will recognize that they have disability insurance, whether provided by an employer, union, or purchased on its own, and assume that it means they have nothing to worry about. However, the specific details associated with disability insurance programs are incredibly important, particularly the differences between long term vs. short term disability policies.

So, as you review your existing disability insurance or consider purchasing a new plan that includes it, you must keep in mind the pros and cons of long-term vs. short term disability insurance:

How long will you receive benefits?

The most fundamental difference in short term vs. long-term disability is in the name: how long do the benefits last? Short term disability insurance is intended to cover a period from three to six months. Short term disability insurance is meant to provide income for shorter recovery periods from accidents or health issues that are not permanent.

Long-term disability insurance, on the other hand, is meant to provide a safety net for a much longer period, typically in intervals of five years or even until the policyholder reaches retirement age. The reason for this difference is that long-term disability insurance is provided to make sure that if an accident or health issue arises on a more permanent level, you’ll still be able to meet your financial needs and receive supplemental care if required.

When will you start getting payments?

For short term disability, because the payout period is meant to cover the immediate financial needs and for a shorter length of time, the waiting period (sometimes called the elimination period) is only a few weeks or less. Long-term disability insurance plans will typically start paying after a waiting period of three or six months.

How much will your payout be?

In NJ, short-term disability is required by law. The benefit (as of July 1, 2020) is 85% of pre-disability earnings to a maximum of $881/week. Some employers will have a supplemental plan. Long Term Disability provided by an employer will typically pay 66 2/3rd % of pre-disability income to a monthly maximum, often $5,000, but it may be higher. Individual long term disability policy payments will depend on the amount of insurance purchased.

Which is right for me?

Whether you need short term disability insurance, long-term disability insurance, or both, is a personal question for you and your family. Factors to consider include what type of automatic coverage your employer offers for accidents and disability, whether you’re the only income earner in your household, your savings, and how much accumulated debt you have.

If you have any questions regarding disability insurance, reach out to a trusted insurance broker. Schechner Lifson Corporation is happy to review your situation and help find you a provider. Contact us today!