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Short-Term Disability Insurance vs. Long-Term Disability Insurance

  • Employee Benefits
  • Article
  • 6 min. Read
  • Last Updated: 02/27/2024


a pregnant woman discusses short term disability with her hr manager

Table of Contents

When it comes to voluntary benefits, knowing what to offer your employees may be challenging. For your employees, understanding the right coverage types and levels can be overwhelming; if they experience a disability, they may not have adequate coverage in place.

To ensure you and your employees have adequate protection when such incidents occur, it's essential to explore the differences between short-term vs. long-term disability.

What Is Disability Insurance?

Disability insurance is a particular type of insurance that protects an employee's ability to earn a paycheck if they experience a severe illness or injury. Disability insurance is not designed to provide benefits if an employee misses a week of work due to the flu, for instance. Instead, it provides coverage after a predetermined waiting period (called the elimination period) for conditions that would keep them from working for extended periods. Disability insurance is generally categorized as short-term and long-term, and each type of insurance has unique benefit periods, elimination periods, and benefit amounts.

What Are Benefit Periods?

The length of time that a disability insurance policyholder can file a claim and receive payment for a covered event is known as a benefit period. All insurance plans have a benefit period, varying based on policy type, the provider, and insurance premiums. Benefit periods for short-term disability average between three and 12 months, while long-term disability coverage, as the name suggests, covers a more extended benefit period that can average between 2 to 10 years and possibly longer.

What Are Coverage Levels?

The coverage level in disability insurance refers to the percentage of an eligible employee's lost gross wages that will be covered during the benefit period. The exact amount will vary depending on the policy. Both short-term and long-term disability coverage levels can be between 40% and 80% of lost wages.

What Are Elimination Periods?

An elimination period, also known as a waiting period or qualifying period, is the length of time a policyholder must wait between when an injury or severe illness occurs and when they become eligible for the payout of benefits. This period starts on the day of the event when the employee becomes unable to work, not when a claim is filed. Standard policies often have a short-term disability elimination period of 14 days and a long-term disability elimination period of 90 days.

What Is the Difference Between Short-Term and Long-Term Disability Insurance?

The main difference between short-term and long-term disability insurance is the length of coverage. Short-term policies are designed to provide benefits almost immediately for temporary disabilities. In contrast, long-term policies have a considerably longer waiting period, but they provide coverage over a longer term for more serious illnesses or injuries. Since insurance companies may potentially provide benefits for years with a long-term policy, the medical requirements are also more rigorous.

Use the chart below to get a side-by-side comparison of the differences between short-term and long-term disability coverage.

  Short-Term Disability Long-Term Disability
Average Benefit Period Typically, 3, 6, or 12 months Normally 2, 5, or 10 years; it can be for life on some policies
Elimination Period 7-30 days; 14 days is most common 90 days on most standard policies; the insured can choose a more extended elimination period to lower premiums
Benefit Amount 40-80% of lost wages 40-80% of lost wages
Average Cost of Coverage 1-3% of employee's pre-tax salary 1-3% of employee's pre-tax salary
Where to Get Coverage Employer-sponsored plans, supplemental policies, or private coverage Employer-sponsored plans, supplemental policies, or private coverage
Conditions That Qualify for Disability

Any that medical professionals deem where the employee cannot do their designated job.

Dependent on specific policy definition.

Any that medical professionals deem where the employee cannot do any job.

Dependent on specific policy definition.

Are Part-Time Employees Eligible? Possibly; dependent on the number of hours worked per week, length of time employed, and the medical condition looking to be covered by the policy. Depends on the policy; most long-term policies require that employees work 30-35 hours per week at the time they become disabled to qualify.
Do Employers Help Pay? May be offered as an employer-paid benefit; states may require whether employers must carry a policy  May be offered as an employer-paid benefit; states may require whether employers must carry a policy

What Is Short-Term Disability Insurance?

Short-term disability is a voluntary insurance (in most states) that replaces a portion of an employee's income in the event of a temporary disability. Typically, this insurance policy is paid in full or in part by the employer, and the employee must be unable to perform their regular work duties due to illness or injury to qualify for benefits under the policy.

Although this coverage may seem like workers' compensation coverage, the two coverage types have vastly different applications. Workers' compensation provides coverage when the illness or injury occurred at work or as a direct result of work activities, while short-term disability may provide coverage when the employee is injured outside the workplace. Generally, an employee cannot qualify for benefits under both workers' compensation and short-term disability for the same incident simultaneously.

  • How Does Short-Term Disability Insurance Work? 

    How Does Short-Term Disability Insurance Work? 

    Short-term disability protects both the employee and the employer if the worker can no longer do their job due to covered illness or injury. When a qualifying illness or injury happens, an employee can file a claim with a disability insurance company to receive the income specified in the policy benefits. This helps to protect the employee from financial hardship during the recovery period by providing temporary income for routine expenses.

    Short-term disability also helps the employer. The policy helps to protect the employer's investment in a valuable employee by ensuring the employee can remain financially stable long enough to recover and return to work. Since disability benefits are paid by the insurance company and not the employer, this also provides financial flexibility that would allow the company to pay for a temporary replacement without incurring excessive labor costs.

    Some states, such as California, Hawaii, New Jersey, New York, and Rhode Island, require employers to provide short-term disability coverage to all employees, along with other employee benefits required by law. The state may offer a state-sponsored disability plan, or employers can purchase one through a private carrier. In these states, many rules regulate short-term disability, so employers should carefully review any applicable regulations.

  • What Does Short-Term Disability Insurance Cover? 

    What Does Short-Term Disability Insurance Cover? 

    To qualify for short-term disability benefits, an employee must be unable to do their job, as deemed by a medical professional. Medical conditions that prevent an employee from working for several weeks to months, such as pregnancy, surgery rehabilitation, or severe illness, can qualify to receive benefits. Since employers in most states must legally provide workers' compensation insurance to all employees, any injuries incurred on the job are typically covered under a workers' compensation policy and are therefore not eligible for short-term disability.

    There can be exclusions for preexisting conditions or intentional and foreseeable injuries (such as those inflicted during the commission of a crime). While employees can qualify for time off under the Family and Medical Leave Act (FMLA) to care for a sick relative, most short-term disability policies would not provide benefits if the covered employee is not the one with the illness.

  • Does Short-Term Disability Insurance Cover Pregnancy-Related Leave? 

    Does Short-Term Disability Insurance Cover Pregnancy-Related Leave? 

  • When Do Short-Term Disability Insurance Benefits Start? 

    When Do Short-Term Disability Insurance Benefits Start? 

    Once a claim is filed, there's usually a short waiting period — the elimination period — of 1 to 14 days before an employee can begin collecting benefits from the policy. The waiting period will be specified in the policy terms during signup. For most disability claims, the employee must provide a medical form signed by a doctor that details the illness or injury. The form asks for the first date of illness or injury, typically used as the beginning of the elimination period.

  • How Long Are Short-Term Disability Insurance Benefits Available? 

    How Long Are Short-Term Disability Insurance Benefits Available? 

    While benefit periods may vary across different providers, most short-term disability policies provide benefits for 3 to 6 months. Some policies, especially those connected with a long-term disability policy, may provide short-term coverage for an entire year. If an employee needs additional coverage beyond the initial short-term disability period, a long-term disability policy may be required to extend the benefits.

  • Are Short-Term Disability Insurance Benefits Taxable, and What Are the Benefits?

    Are Short-Term Disability Insurance Benefits Taxable, and What Are the Benefits?

    Income from a short-term disability policy may be taxable, depending on whether it was funded with pre-tax or post-tax income. Most employer-sponsored disability plans are paid on a pre-tax basis either directly from the employer or through payroll deduction from the employee (or a combination of both). In these cases, the insurance proceeds would be taxable, since taxes were not paid on the income used to fund the policy. In contrast, if an employee purchases a private disability policy outside the employer's benefits plan, this would be purchased with post-tax income, and the disability benefits would not be taxable.

    The actual amount paid out in benefits on a short-term policy is typically 40-70% of the employee's earnings for the covered event period once the elimination period has passed. The employee may opt to deduct taxes from the benefits check (if applicable) to avoid a tax liability at the end of the tax year on any disability benefits paid.

  • Short-Term Disability vs. FMLA: Differences in Benefits and Requirements 

    Short-Term Disability vs. FMLA: Differences in Benefits and Requirements 

    Employees who must take a leave of absence from work have some form of leave entitlement under both short-term disability insurance and FMLA. But they each have their considerations, terms, and requirements.

    One of the differences between short-term disability vs. FMLA is around an employee being paid within the duration of the leave. Short-term disability insurance provides wage replacement benefits. A person approved for short-term disability usually receives some percentage of their weekly earnings during their time away.

    The requirements for qualifying for short-term disability are also different from FMLA's qualifications. For example, an eligible employee who works for a covered employer can take up to 12 weeks of unpaid leave under FMLA. The requirements for short-term disability are different. Depending on the policy, employees may only have to work for as few as 90 days to be eligible for short-term disability coverage. In some cases, the short-term disability benefit period can also last longer than FMLA time; some employers provide up to 12 months of disability coverage.

    Short-term disability insurance and FMLA also differ in who is covered while away from work. Short-term disability generally only applies to injuries and illnesses suffered by the employee, while FMLA allows employees to take time away for certain family and medical reasons.

  • Reasons Short-Term Disability Insurance Coverage Can Be Denied 

    Reasons Short-Term Disability Insurance Coverage Can Be Denied 

    There are several reasons why an insurance company can deny short-term disability benefits:

    • Lack of medical evidence: Employees must provide documentation from a medical professional that a medical condition or injury deems them unable to do their designated job. Incomplete or insufficient documentation can result in the claim being denied.

    • Failure to meet eligibility requirements: Short-term disability benefits can be denied if the employee doesn't meet the criteria set by the policy, such as having worked for their employer for a certain period.

    • Preexisting conditions: Some insurance companies exclude certain preexisting conditions. A claim can be denied if the employee's condition was present before being covered by the policy.

    • Failure to follow treatment: Benefits can be denied if the employee doesn't follow the prescribed treatment plan for their medical condition.

    • Lack of disability: The insurance policy will outline which medical conditions meet the definition of disability. A claim can be denied if a medical professional's diagnosis doesn't fit this definition.

    • Fraudulent claims: This includes falsifying documents or misrepresenting a medical condition.

  • Short-Term Disability Insurance and Job Protection

    Short-Term Disability Insurance and Job Protection

    Many companies offer short-term disability insurance as part of their benefits packages, but several states and Puerto Rico mandate it:

    Employees eligible to receive benefits under these state laws typically remain employed while collecting short-term disability benefits, but Rhode Island is the only state that includes job-protected leave as part of its program. FMLA or other state laws, such as the California Family Rights Act, may offer employees similar job protection.

What Is Long-Term Disability Insurance?

Long-term disability is an insurance plan that often works with short-term disability to provide income for long-term illnesses and injuries. Once short-term disability benefits are exhausted, a long-term disability policy continues to provide employees with some income until they can return to work.

  • How Does Long-Term Disability Insurance Work? 

    How Does Long-Term Disability Insurance Work? 

    Long-term disability works in much the same way as short-term disability. Once a plan is in place, the employee must provide medical proof of a qualifying illness or injury lasting beyond the long-term disability elimination period. Once the burden of proof has been met, the employee can begin receiving the benefits specified in the policy. Benefits will continue until the employee is medically cleared to return to work or has exhausted the policy benefits.

  • What Qualifies for Long-Term Disability Insurance Coverage and What Does Long-Term Disability Cover? 

    What Qualifies for Long-Term Disability Insurance Coverage and What Does Long-Term Disability Cover? 

    The qualifications for long-term disability are usually more stringent than those for short-term disability. With short-term disability, benefits can be awarded if the employee cannot do their job. With long-term disability, benefits are typically only granted if the employee cannot do any job. What constitutes a qualifying event will be specified in the policy, so it is essential to understand when benefits may (or may not) apply before accepting a long-term disability policy.

    Qualifying events may include chronic pain, cancer treatments, or debilitating illness or injury lasting more than 26 weeks (about 6 months). If an employee could qualify for another form of income replacement, such as Social Security Disability Insurance, the long-term disability policy will no longer provide benefits or have an off-set benefit.

  • When Do Long-Term Disability Benefits Start? 

    When Do Long-Term Disability Benefits Start? 

    Long-term disability benefits begin after the specified waiting period, and any coordinated short-term disability benefits have been exhausted. If an employer offers both short-term and long-term disability plans through a single insurance provider, the provider will usually pay out under the short-term disability plan to its maximum before applying long-term disability payments, even if the specified long-term waiting period is shorter. For cases where a short-term disability policy may not apply, the standard waiting period for long-term disability policies is three months.

  • How Long Does Long-Term Disability Insurance Generally Last? 

    How Long Does Long-Term Disability Insurance Generally Last? 

    Once long-term disability benefits have been approved, an employee can continue to receive benefits for the policy term or until they return to work. Common coverage durations are 36 months, although some can provide coverage for up to 10 years or even for the policyholder's life.

  • Are Long-Term Disability Benefits Taxable, and How Much Does It Pay?

    Are Long-Term Disability Benefits Taxable, and How Much Does It Pay?

    As with short-term disability benefits, long-term disability benefits may be taxable depending on how the policy is funded. If the policy is paid through a pre-tax payroll deduction, the employee will likely be liable for income taxes on any long-term disability benefits. The covered employee can also opt for taxes to be deducted as each benefits check is processed, or they can resolve any tax liability related to long-term disability benefits at the end of the tax year.

  • What Are the Elimination Periods for Long-Term Disability Coverage? 

    What Are the Elimination Periods for Long-Term Disability Coverage? 

    The most common elimination period for long-term disability is 90 days, but the exact terms of the elimination period will be specified in the policy. If short-term disability coverage is available, the effective waiting period before receiving benefits will be relatively short. However, when a short-term policy is unavailable, employees may have to wait several months with no income before qualifying for long-term benefits. Due to the extended elimination periods, many employees opt for both short-term and long-term disability coverage.

  • Reasons Long-Term Disability Coverage Can Be Denied 

    Reasons Long-Term Disability Coverage Can Be Denied 

    Like short-term disability, long-term disability can be denied for many reasons. Among the most common reasons are:

    • The condition doesn't meet the policy's definition of a disability
    • Not providing the insurance company with all the requested medical documentation, such as medical records, prescription records, and results from medical testing
    • Not including a doctor's report detailing the individual's condition
    • Having a condition not covered by the policy
    • Missing deadlines for providing requested documents
  • Long-Term Disability Insurance Laws 

    Long-Term Disability Insurance Laws 

    Employers may offer long-term disability insurance as part of their employee benefits package. These policies must follow the Employee Retirement Income Security Act (ERISA) of 1974, which provides safeguards around employee benefits programs, including disability insurance.

Should Employees Get Both Short- and Long-Term Disability Insurance? 

Many businesses offer a combination of long-term and short-term disability insurance. The policies work in tandem so that when short-term disability has been exhausted, an eligible employee can start receiving income replacement benefits under a long-term disability plan. Employees will appreciate a more extensive form of protection as part of their benefits package. Given the waiting period for long-term disability, short-term disability insurance is a way for employees to fill this coverage gap and ensure they receive income replacement when needed.

Should I Offer Short-Term or Long-Term Disability Insurance? 

Although illnesses and injuries can't be predicted, they're likely to affect your workplace at some point in the future. For comprehensive protection, employers may consider offering a combination of both short-term and long-term disability insurance to employees. These policies are an essential complement to any group health insurance plan and help minimize the impact of debilitating illnesses and injuries on your employees and your business.

Protect Your Business and Your Team with Short-Term and Long-Term Disability Insurance 

Short-term and long-term disability insurance and other voluntary benefits such as dental, vision, and life insurance can offer a crucial safety net and an additional layer of protection that employees can appreciate. Explore ways that voluntary benefits can enhance your existing employee benefits offerings.

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* This content is for educational purposes only, is not intended to provide specific legal advice, and should not be used as a substitute for the legal advice of a qualified attorney or other professional. The information may not reflect the most current legal developments, may be changed without notice and is not guaranteed to be complete, correct, or up-to-date.

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