How do short-term and long-term disability differ?

If you are fortunate, your employer provides you with both short-term and long-term disability insurance. If not, you may wish to consider purchasing these types of insurance for yourself, particularly long-term disability insurance.

Policy Genius explains that both short-term and long-term disability insurance pay you replacement income if and when you sustain an injury or illness that precludes your continued work. Other than that, however, the two are completely different.

Benefit period

Short-term disability insurance generally pays you for three to six months after a short waiting period, usually two weeks or less. Long-term disability insurance, on the other hand, pays you for between two and 10 years or up until the time you would have retired.

Benefit amount

Short-term disability insurance generally pays you up to 80% of your gross monthly income, while long-term disability insurance generally pays you up to 60% of your gross monthly income. Keep in mind, however, that you pay no income tax on any disability insurance payments you receive. Consequently, both short-term and long-term disability payments likely will come very close in amount to your monthly take-home pay.

Premium amount

If your employer offers short-term and/or long-term disability insurance, even if you must pay part of the premiums, you should likely avail yourself of it. If you have to purchase your own policies, you can expect to pay up to 3% of your annual salary for each of your policies. Other factors that can affect your premium amounts include the following:

• Your age
• Your overall health
• Your occupation
• Your work location
• Extra features you choose to include in your policy

Keep in mind that while most insurance companies offer long-term disability policies, considerably fewer offer short-term disability policies. Even if you find a company offering this type of insurance, its cost may be prohibitive.