Short vs. Long Term Disability Insurance

Posted By: Team Moody,

A type of insurance policy that is most necessary for every employee and employer is disability insurance. It ensures coverage for possible loss of income in the event of an inability to work due to an injury or illness. This can come in the form of an individual plan or a group disability insurance policy. Subsequently, there are also disability insurance policies that can cover for a short period which can be in a matter of several months, and those that come in the long term, which can go on for decades. Either way, the employee’s needs, budget, and expectations should be thoroughly considered when choosing which type of disability insurance is the most suitable.

Distinctions Between Short Term and Long Term Disability Policies

Determining the most appropriate type of disability insurance coverage for an employee can be overwhelming. It is important that employees have the right knowledge and understanding of the differences between short term and long term disability insurance to ensure they will get adequate protection.

Coverage Periods

One of the primary distinctions of short term disability policy from the long term options is the length of the period it covers. For short term disability insurance policies, the coverage would usually go from three to six months. There are some short term policies that offer coverage up to one year, although those are rare. On the other hand, disability insurance policies that are long term offer coverage from six months onwards and can usually last for decades. In most cases, long term disability policies offer coverage up to the retirement age of the employee. In some cases, this can be a lifelong coverage depending on the specifications indicated on the policy.

Waiting Period Before Coverage Starts

Another significant difference between a long and short term disability insurance policy is the waiting period, or commonly known as the elimination period. It is the period before the benefits stipulated within the disability insurance policy actually starts. On average, it would only take less than fourteen days for the coverage benefits of a short term disability policy to kick in. This means the employee can avail of its benefits immediately because of a shorter elimination period. Meanwhile, it normally takes around ninety days before the policyholder or employee will start receiving the benefits for a long term disability policy.

Insurance Cost

Another factor that shows a significant difference between the two types of disability policies is the cost. However, in general, the cost of a disability insurance policy will depend on the employee’s health status, age, type of occupation, and other stipulations that might be included in the policy which is more or less around 1 to 3% of an employee’s yearly salary. But for most businesses, a short term group disability insurance plan can be cheaper compared to the long term plans. This is mainly because short term disability policies have shorter payout periods than long term plans.

Amount of Coverage Benefit

Any type of disability insurance coverage cannot fully replace an employee’s monthly salary. However, there is a difference between the amount of coverage benefit offered for short term and long term disability plans. For short term disability plans, it assures the policyholder or employee to receive a larger percentage of the monthly income which can go up to 70%. However, larger payouts occur in the first few weeks, but will normally go smaller for the remaining payouts. On the other hand, long term disability insurance payouts range from 40 to 70% of the monthly salary. Additionally, payouts for long term plans are consistent and goes on for a longer period compared to that of a short term disability coverage.

Disability insurance policies are one of the must-haves for any business. Although illnesses and injuries can’t be predicted, they are likely to have a profound effect on your staff and your company at some point in the future. Regardless, of current physical condition, gender, or age, being unprepared for any type of potential injury and illness that can happen within the workplace can cause serious financial strain to an employee. Additionally, disability insurance aims to protect the employer’s investment in a valuable employee when such events happen. A disability insurance coverage, be it short or long term, serves as a safety feature that would both benefit the employer and employee.

About Moody Insurance Worldwide

Moody Insurance Worldwide, a division of Moody & Associates that was founded in 1914, is a leading provider of risk management programs and insurance coverage to individuals and businesses across the East Coast. We write all sizes of businesses, with technical expertise in many key industry areas, and provide personal insurance programs for estates and high net worth individuals. Our licensed, experienced commercial account managers can work with you to determine the coverage that you need at a competitive rate. Contact us today at (855) 868-0170 to learn more about what we can do for you.