If you work, have others depending on you financially, and would feel the financial pinch if you spent months or even weeks without a paycheck, you should consider disability insurance to protect your income. But what’s the difference between long-term and short-term disability insurance? Would you benefit from one or the other, or both? Here’s a little bit about each type of policy to help you determine which would be of most use to you:
Long-Term Disability Insurance (LTD)
Long-term insurance protects an employee’s income, should he or she suffer an illness or accident that prevents him or her from working for a long period of time. This kind of insurance does not provide coverage for work-related injuries, or injuries that are covered by worker’s compensation. However, it does provide coverage for personal accidents (for instance, a car crash).
LTD assists the employee once short-term disability insurance benefits ends, so the elimination period equals the benefit period of a short-term disability policy. Although LTD has a longer elimination period, it provides coverage for a longer time as well. Coverage may last for two years, or until retirement, depending on the policy.
Short-Term Disability Insurance (STD)
Short-term disability insurance is a policy that protects an employee’s income in the event he or she is temporarily unable to work due to illness, injury, or an accident. Like long-term disability insurance, STD does not protect against work-related injuries that are covered by worker’s compensation.
Some factors that affect eligibility for STD include the length of time that the individual has been employed for, and whether the employee is full-time or part-time. STD has a shorter elimination period—usually a few weeks or up to two months. The benefit period is typically 6 to 24 months, and the benefit amounts usually fall between 60% and 70% of the employee’s compensation.
Since the benefits of LTD kick in once STD has been exhausted, both are needed for the fullest amount of coverage. However, if you have enough savings as to where you wouldn’t feel the pinch without a month or two worth of paychecks, long-term disability insurance may be enough. Speaking with an advisor can help you determine which kind of coverage is the best option for you.
