Short-Term vs. Long-Term Disability Insurance

No one wants to think about something happening that could impact their ability to work and earn a paycheck. Unfortunately, bad things happen, and the only thing you can do to help when the unthinkable occurs is to plan ahead. The good news is you have two really good options to help safeguard your finances when trouble hits — short- and long-term disability insurance.

Short-term disability insurance

The name gives you a clear clue that short-term disability isn’t for the long run. According to Investopedia reviewer Julia Kagan, the coverage you’ll earn from short-term disability insurance lasts approximately three to six months. During this window, per your company’s short-term disability policy, you should still be able to earn an income, albeit a fraction of your regular salary. Susannah Snider, senior editor, personal finance at U.S. News & World Report notes that the portion could be up to 50 to 60 percent of your regular paycheck, although NerdWallet writer Barbara Marquand reports it can be up to 70 percent. She adds that your short-term disability benefits might take up to two weeks before kicking in.

Long-term disability insurance

Long-term disability insurance offers coverage and a steady income if you find yourself unable to work for six months or more, reports Kagan. With long-term disability insurance, approximately 40 to 60 percent of your base salary will be covered, according to Marquand. Just like with short-term disability, there is a waiting period, also known as an “elimination period,” before you’ll receive payments. Marquand notes typically that waiting period stretches across 90 days. Because the waiting period can be extensive, prepping your finances is crucial.

“This can last up to six months or longer, so it’s important to have an emergency fund on hand to cover months of unpaid time before your benefits start coming through,” reports Snider.

Disability insurance options

Many employers offer short-term and long-term disability benefits, so check with your management or human resources department to find out the exact details, rules and benefits your company provides. If your company doesn’t sponsor disability coverage for you, it might offer you the chance to buy it through them, according to Marquand.

“Some employers don’t pay for disability coverage but offer it as a voluntary benefit. This lets employees buy coverage through the employer’s insurance broker at a group rate,” she reports.

If a company-sponsored or company-offered plan is unavailable, you’re self-employed or feel the disability coverage you have is lacking, you can purchase disability insurance from a professional association or from an insurance company or broker, she adds.

How much is enough?

It’s hard to 100 percent predict what you’ll need if you ever find yourself unable to work for a period of time. But you can get a realistic picture by scrutinizing your current bills, financial obligations, goals and how you handle your money, reports Snider.

Investing in short-term or long-term disability now will help protect your future if you can’t work. Plan ahead, and you’ll be better prepared for unexpected issues.

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