Disability Insurance As An Employee Benefit: Long Vs. Short Term

Most of us are used to having health insurance plans that cover medical bills when we get sick or injured. But what if an illness or injury prevents us from working? That is where disability insurance comes in. Five states and Puerto Rico have mandatory Temporary Disability Insurance (TDI) programs in place to cover short-term disabilities. As for long-term disability, there are both public and private options.

According to the Insurance Information Institute, roughly half of all American corporations and large businesses offer long-term disability insurance as an employee benefit. This is a voluntary benefit inasmuch as employees do not have to sign up for it if they choose not to.

In the absence of an employer-sponsored insurance plan, a disabled worker would have to file for federal disability benefits through the Social Security Administration.

What Is A Disability Insurance All About?

Disability insurance or as called popularly “disability income insurance,” is outlined to replace a part of your income owing to a serious injury. With disability insurance, you get direct benefits to cover all medical expenses without any limitation on the money spent. 

Policies might vary, but insurance generally protects 70% of your total income. The period ranges from 3 months to your retirement. The only difference between a short-term and long-term disability is the length of these benefit periods. The coverage level for each type of policy might also be different. 

Long And Short Term Disability

There is no hard-and-fast rule for defining long and short-term disabilities. The federal government defines long-term disability, for the purposes of collecting federal disability payments anyway, as a disability that prevents a person from engaging in meaningful employment for a minimum of three months. Anything shorter than three months would be considered a short-term disability ineligible for federal benefits.

The states with mandatory TDI tend to require employers to carry their own insurance to cover short-term disabilities. TDI is strictly intended to be a short-term program. Workers who are unable to return to work after three months are expected to file for federal benefits.

Short Term, No Insurance

What happens to a temporarily disabled worker in one of the 45 states without mandatory TDI? Some employers allow workers to take advantage of extended sick time and personal leave. Employees often need to use their vacation time as well. Once all an employee’s paid time off is used, that’s it. They need to make up for lost income in some other way.

Although such a scenario is unfortunate, it is the primary motivation for companies choosing to offer disability insurance as an employee benefit. Employers can choose to offer short-term, long-term, or both. They can also choose one of three models to pay for it.

One Or Both Parties

BenefitMall is a general agency representing more than one hundred insurance carriers to thousands of benefits brokers across the country. They explain that many larger companies pick up the entire cost for group disability benefits. They get good group rates, allowing them to offer a short or long-term disability plan at a fairly low cost.

Assuming a company does not want to bear the entire cost on its own, there are two other options:

• Shared Cost – A company can treat disability insurance just like health insurance. The company pays a portion while employees pick up the rest through payroll deductions.
• Employee Paid – A company can also contribute nothing at all. In such a case, employees choosing to subscribe must cover the entire cost themselves.

As a voluntary benefit, employer-sponsored disability insurance is a better deal for employees even when they must pay the bill. This is due to the lower group rates insurance carriers offer. The cheaper rates are in exchange for employers bringing larger numbers of subscribers into the plan. Consider it bulk pricing, if you will.

FAQs Related To A Disability Insurance

While disability insurance is not an unknown concept, there are certain questions related to it. We tried to figure out some of them in the later section of the article with the desired answers. Check them out:

• How to get disability insurance? 

A lot of employers provide disability insurance to the workforce at absolutely no cost, while others offer a discounted group rate. Make sure to check with your employer to see whether the insurance is available for you or not. 

In case your employer does not provide disability insurance, consider opting for an individual disability insurance policy. Try purchasing additional coverage via an individual policy if you have absolutely nothing with you. 

• Do you need both long-term and short-term disability insurance? 

Both the short-term disability insurance policy and the long-term one go hand-in-hand. Short-term disability covers you as soon as a serious injury or illness takes place. On the other hand, long-term insurance maintains income replacement when your short-term insurance reaches its limit. 

In case you have both policies in place, you might transition from one policy to another when the period ends. It is a better idea to own both insurance policies to avoid unpredicted health challenges. 

• What is the elimination duration?  

Suppose your short-term insurance has completed paying all the benefits within a few weeks. It might happen that long-term insurance takes a long waiting duration. This time period is called the elimination period. 

When you consider disability policy, don’t forget to take into account the ways to cover your expenses at this time. Make sure to have an emergency fund that will take care of your bills and lost income.

Wrapping It Up 

About half of the nation’s largest companies offer disability insurance as an employee benefit. Will the other half eventually catch up? That remains to be seen. Disability insurance is a nice voluntary benefit, but it is also an additional expense. Money always plays a role.

Make sure to think thoroughly before claiming insurance, as it might have an impact on your upcoming financial decisions. Don’t forget to keep the above-mentioned points in mind.

So, this was it! Communicate your thoughts in the comment section below. Thank you for reading it.

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