Short Term vs Long Term Disability Insurance & Income Replacement

Jul 31, 2010
Carol Finch

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Short term (STD) & long term (LTD) disability insurance may give income replacement in the event of a disabling illness or accident. How does coverage work?

Although many people will buy life insurance as a matter of course, some fail to realize that there are other types of insurance that may also be good to have. Disability insurance, in either a short term or long term plan, may help replace income in the event that an individual is unable to work through sickness or accident. What are the differences between STD and LTD coverage?

What is Short Term Disability (STD) Insurance?

A short term disability plan will give benefits for a period of weeks/months and, in some cases, up to a year or more. This kind of insurance will replace a percentage of an individual's salary in the event that they cannot work due to a disabling illness or accident.

Most people will not buy their own short term coverage although it is possible to do so. Those that do have this kind of plan may often be given it by their employer as a form of sick leave. Five states (California, Hawaii, New York, New Jersey and Rhode Island), Puerto Rico and the railroad industry also all have laws that provide Temporary Disability Insurance (TDI) as a form of short term plan to residents.

What is Long Term Disability (LTD) Insurance?

A long term plan is designed to pick up when short term benefits cease. Here, coverage may last for a set number of years or until the individual retires. Again, the aim is to replace part of the income that may be lost because the individual is unable to work. The actual percentage given may vary according to the policy.

A long term plan can either be given by an employer or can be purchased as an individual policy. In some cases, those with group work plans will also add to coverage by buying supplemental insurance. Some employers will also give workers the opportunity to buy benefits from them at beneficial rates.

Is Group STD and LTD Coverage Better Than Individual Disability Insurance?

Not all employers will offer disability insurance benefits and those that do may impose plan conditions that detract from the value of coverage. Those that are given a group plan may, therefore, want to check over terms, conditions and exclusions to work out when benefits may be given and when they may be refused.

In some cases, workers will be happy with their employer plans. Those that feel that they need more coverage, however, may want to add benefits themselves to extend their protection in the event of disability. This may be especially useful for those that earn regular bonuses or commission payments as these are not always covered in group policies.

Those interested in learning more about supplemental disability insurance and the pros and cons of this kind of coverage in general may find the following articles useful:

Sources: Insurance Information Institute ("Disability Insurance); Social Security Online ("Temporary Disability Insurance"). Accessed online 30th July 2010.