Long Term and Short Term Disability Insurance
When shopping for disability insurance, pay attention to whether the policy you are considering offers long-term or short term disability benefits, and buy the policy that best suits your needs.
How do long term and short term disability policies differ?
Long term and short term disability policies, by definition, have different purposes. Short term disability insurance is designed to pay you benefits sooner and for a shorter period of time than long term disability insurance. Here are the two major differences between these policy types :
They offer different elimination periods
Under the terms of your disability insurance policy, you'll have to wait for a certain period of time after you become disabled before you can begin receiving benefits. This waiting period is known as the elimination period. Some policies (typically short term policies) even offer two elimination periods -- a shorter one for accidents, a longer one for sickness. Elimination periods under short-term policies generally range from 0 to 14 days, depending on the terms of the policy. Elimination periods under long term policies, on the other hand, are longer, ranging from 30 to 720 days, although a 90-day elimination period is most common.
They offer different maximum benefit periods
If you suffer a disability, you'll receive benefits until you recover or reach a certain maximum. By definition, short term disability policies pay benefits for up to two years, although many policies pay benefits for only three months, six months, or one year. Long-term disability policies, on the other hand, pay benefits for a far longer period--for a few years, up to age 65, or even for a lifetime.
Should I buy long term disability insurance or short term disability insurance?
If you can't afford to purchase both, it generally makes more sense to purchase long-term disability coverage. Even though most disabilities last only a short-time, you may be able to financially survive a short-term disability, even without insurance. On the other hand, without insurance, a long-term disability insurance can seriously threaten your finances.
However, consider these factors as well:
What other protection you have
If you suffer a disability, you may be eligible for benefits from a government-sponsored disability insurance program such as Social Security or workers' compensation (if your disability was work-related). Your employer may also provide coverage, although employers offer short-term coverage more frequently than long-term coverage. Don't buy a policy that duplicates coverage you already have elsewhere.
The type of coverage you can afford to buy
Consider what you can afford to buy. Short-term coverage is typically less expensive than long-term coverage because benefits are paid for a shorter period of time.
How do I buy a short-term or long-term disability insurance policy?
You can buy disability insurance through a private company that sells individual policies, or you can purchase group disability insurance through an association to which you belong or through your employer. Employers may also offer you a certain amount of disability insurance at no cost to you as part of your employee benefits package.
