Disability insurance (DI) is a type of security that reimburses a worker equivalent to or partial of his regular salary, especially if he becomes disabled and cannot proceed with his job. The disability insurance also covers expenses the worker incurs while recovering from diseases or injuries.
Unlike the disability coverage of the Social Security, private DI can cover about 70% of the salary of an employee at any age when the injury or illness arises.
Some employers offer DI coverage to their employees, and there are also those who buy their private DI. Employees are often confused about what type of insurance they should have, whether short-term disability (STD) or long-term disability (LTD).
To help you understand disability insurance, we will discuss the difference between a short-term and long-term disability insurance in this article.
Coverage Of STD vs. LTD
The coverage of STD premium starts from one to seven days from the time that the employee becomes sick or injured. Also, STD compensates the insurer every week for 13 to 26 weeks while he is recovering.
Meanwhile, once you have used the STD premiums, then you can now use the LTD. Its waiting period is from 90 to 180 days.
Unlike STD, LTD provides coverage until the injured employee comes back at work and has fully recovered.
STD Is More Affordable Than LTD
The average price of both STD and LTD is about 1 to 3% of your annual gross income.
However, LTD is pricier because it has a broader scope and it is customizable. Just like life insurances, the price of LTD depends upon various factors such as age, occupation, sex, coverage period, and salary of the person being insured.
For example, if an employee makes about $100,000 gross each year, he will need to pay $1,000 to $3,000 each year for his disability insurance.
The cost may rise by 15% of your annual income if you are 45 years old and above and has a high-risk position in your job. On the other hand, you can pay as low as 1% of your gross annual income if you are 30 years old and below and hired in a stationary, office-based position.
Advantages and Disadvantages of STD
For employees who would like to avail of the STD, this might be the best choice if:
- The employer provides LTD in your work.
- You have limited savings in the bank to cover the first few weeks of your illness or injury.
- You wish to have lower monthly payments and short-term benefit payments.
However, some of the disadvantages of STD includes the following:
- Benefits are limited and can run out in few weeks and the person is left on their own until they fully recovered.
- Limited payout protection and fewer options. For example, if insured dies, becomes disabled, etc.
Advantages and Disadvantages of LTD
Indeed, LTD offers various benefits such as the following:
- Provides monthly payments that can last from six months and beyond.
- Benefits of up to 70% of the salary of the policyholder will continue as long as he has not yet recovered from disability.
- More options like coverage for hospital stays and increase of insurance for higher monthly payments.
Meanwhile, the disadvantages of the LTD are the following:
- LTD costs higher than STD
- Three to six months waiting period before the insurer gives benefits. Employees will have to pay the expenses with their own money for the first few months of acquiring the disease or accident.
- Payment plans are subject to change after two years of having the disability.
Thus, LTD is best for employees who have savings in their banks to cover for the first few weeks or months of their accidents or diseases. It is also useful for those who can afford to pay for higher premiums in exchange for having long-term benefits.
Thus, LTD and STD provide various types of coverage and for those workers that can afford it, can opt to buy both to be covered when an emergency happens.
However, this is not always the best option due to the high costs that each one needs to pay individually. For those who can afford to have one type of insurance can choose LTD and have some savings in their bank to pay for the first few months of disability. Professionals knowledgeable on the matter, such as ones found here, might be of assistance regarding your concerns.
Take note of the difference mentioned above so you can have a guide of the different points between a short-term and long-term disability policies and determine which one works best for you.
Andrew is a passionate writer, writing about disabilities and the law. He has written about many subjects aimed to help those who have questions unanswered. In his spare time he enjoys working on volunteering for those less fortunate.