Long Term vs Short Term Disability Insurance

Your company cares about doing the right thing for its employees. After all, they’re what keeps everything running smoothly. When the worst situations arise and an employee is out on disability leave, would you rather send them a get-well card, or a check? With disability insurance, you can do both. Employers who carry disability insurance can ensure that their employees will receive a portion of their income through disability insurance while they are unable to work.

There are two main kinds of disability coverage you should be aware of when considering whether offering this insurance makes sense for your business: short term disability insurance and long term disability insurance. Read on for a guide to the two types, and some considerations to keep in mind when determining whether you will offer this type of insurance as part of your competitive benefits package.

What’s the difference between Short Term and Long Term Disability Insurance?

Disability Insurance Generally:

Disability insurance is essentially “paycheck insurance” for your employees if they are injured or diagnosed with a serious illness. This type of coverage is not intended to cover the wages an employee misses when they are out of work for a couple of days because of strep throat or the flu. When a qualifying event happens, an employee with disability insurance simply files a claim with the insurance company to receive a portion of their paycheck.

Disability insurance is also a separate concept from workers’ compensation benefits, which are regulated by state law and (in brief) determine the amount of money an employee must receive if they are injured at work while performing activities within the scope of their employment. Disability insurance, on the other hand, covers wages in the event of an unrelated illness or injury.

Short Term Disability Insurance:

Short term disability insurance policies pay benefits for less time than long term disability insurance policies will. These types of policies will usually provide an amount of an employee’s income for a period of three months, six months, or a year, depending on the level of coverage. In addition to illness and injury, they also cover some medical conditions you may not think of that would prevent an employee from working for a few months, such as pregnancy or rehabilitation after surgery. Short term disability insurance typically covers forty to seventy percent of an employee’s lost wages, with most common being sixty percent.

Short term disability insurance policies include what’s called an elimination period, or a period of time that an employee must be out of work before benefits under the policy will kick in. Elimination periods are generally anywhere from seven days (one week) to thirty days (one month), but the most common period is fourteen days (two weeks).

Long-Term Disability Insurance:

Long term disability insurance policies pay benefits for a longer time than short term disability insurance policies will. These types of policies will usually provide an amount of employee’s income for a period of two, five, or ten years – and on some policies, an employee can be insured until retirement (say, age sixty-five,). Long term disability insurance typically covers sixty to eighty percent of an employee’s lost wages, with most common being sixty percent

Long term disability insurance policies also include elimination periods, though their waiting times are a bit longer: on average, at least ninety days (three months). However, it is common for insurance companies to offer lower premiums in exchange for even longer elimination periods.

Should Your Company Offer Disability Insurance?

Offering disability insurance to your employees helps them out in obvious ways: it guards them against some of the financial difficulties associated with an already stressful period of time following an injury, illness or diagnosis. Disability insurance also benefits you, the employer, as well.

Think of disability policies as a projection of your sunk cost in your employees. With disability insurance, they’ll remain stable until they can return to work. You won’t lose them and all you’ve invested in their training due to a relatively brief period out of the workforce. And because the insurance company will be paying their benefits, your company will be able to afford to hire a temporary replacement for the displaced worker.

If your company has ten or more employees, it may make sense to offer benefits through group disability plans. Most group disability plans will be able to provide your employees with competitive coverage for lost wages, i.e., up to sixty percent of their regular paycheck. Plans usually have a capped maximum monthly or annually.

What are the Pros of Offering Disability Insurance Through a Group Plan?

When offering disability insurance through a group plan, as the employer, you’ll be able to choose the plan that works with your benefits budget. You will also be able to offer coverage to your employees at a lower rate than they would have to pay if they sought out disability insurance individually.

Offering a group plan doesn’t mean your business necessarily has to pay the entire premium amount, however. You might elect to pay the entire premium, pay some of the premium, or none of the premium. Of course, you should always stay aware of state laws regarding disability insurance, as some states require companies to offer a certain amount of coverage.

There are benefits to paying the premium for your employees: not only will you add a competitive recruitment and retention tool to your benefits package, but you can also consider company-paid premiums as a tax-deductible business expense.

Can We Offer Both Short Term and Long Term Disability Insurance?

Absolutely! Long term disability is frequently paired with short term disability insurance since short term benefits don’t last forever, but long term benefits may last through retirement age. Also, since the elimination, or waiting period, for short term benefits is much shorter than it is for long term benefits, the addition of short term disability insurance to a long term plan can be particularly relieving to an employee waiting through a long elimination period.

Talk to an Expert about the Plan That’s Perfect for Your Employees.

Considering offering disability insurance to your team? Weigh the pros and cons of coverage for your organization with an expert. AEIS is here to help. AEIS is a strategist, advocate, and advisor for businesses looking to select, optimize, and maintain the perfect employee benefits package. Contact AEIS today.