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Short-term disabilities are more common than you might think, with 5.6% of working Americans experiencing one every year, according to the Council for Disability Awareness. That’s where short-term disability insurance comes in. It replaces a portion of your paycheck if you can’t work due to an illness or injury — but the benefits typically only pay out for up to a year.
Short-term disability (STD) insurance pays a percentage of your income if you suffer a covered illness or injury and can no longer work. It replaces between 60% and 80% of your paycheck and pays benefits for a short period, typically three to six months.
When you apply for short-term disability insurance, you’ll need to choose an elimination period. Also known as a waiting period, this is the length of time you’ll wait before you start receiving benefits. The options vary between insurers, but usually range from one to 90 days.
If you become disabled, the clock starts ticking on your elimination period. Once the elimination period ends, the benefit period begins and you’re eligible to collect benefits. Since STD is designed to cover short-term needs, the benefit periods are usually limited to 30, 60, 90, 180 or 365 days, or rarely up to three years. Once the benefit period is over, you’ll stop receiving disability payments.
Each insurer has its own definition of disability. But generally, short-term disability insurance can cover:
Work-related injuries and illnesses are typically covered by worker’s compensation. However, if you also have a short term disability policy that covers work-related injuries you might be able to collect both until your policy begins to offset with other income.
Some insurers — such as Mutual of Omaha — offer a worker’s compensation benefit rider. This pays out 50% of your STD benefits if your injury or illness is covered by state or federal worker’s compensation.
A quarter of short-term disability claims are related to pregnancy and childbirth, according to the Council for Disability Awareness.
Depending on your policy and how you deliver your child, you might be eligible to receive benefits for six to eight weeks. If you have a high-risk pregnancy or experience complications, hypertension or postpartum depression after birth, the benefits might be payable for longer.
The catch? To qualify for short-term disability benefits, you must purchase the policy before becoming pregnant.
Disability insurance and pregnancy
In California, Hawaii, New Jersey, New York and Rhode Island, employers are legally required to offer short-term disability plans to their employees. But if you live outside of those states and you don’t have STD through your workplace, you can purchase an individual policy.
Some insurance companies also sell private short-term disability insurance, though there aren’t as many options as long term disability insurance. One of the perks of going through a private provider is that you’ll be able to customize your elimination and benefit periods to suit your needs and financial situation, and it’s not tied to the options offered by your employer.
You won’t pay income tax on the proceeds from a disability policy if you paid the premiums with after-tax dollars. That’s because you paid your premiums with money that’s already been taxed. But your short-term disability premiums don’t qualify for a tax deduction.
If you rely on your income to survive, it’s a good idea to look into disability insurance. That way, if you become disabled and can no longer work, your policy will step in to cover part of your income and help you pay for your living expenses.
While short-term disability can replace up to 80% of your salary, the benefit period is limited. That’s why short-term disability policies are best used to complement long-term plans.
Long-term disability insurance lasts many years or until you reach retirement, and the list of covered illnesses and injuries is more exhaustive. Though it’s the more expensive option of the two, you can cut costs by choosing a longer elimination period.
If you fall into one of these categories, a short-term disability insurance policy can offer you peace of mind and protect your livelihood:
Both policies protect your income, but the major differences are the percentage of your paycheck they replace, and the time that benefits are payable.
These are the key features of short- and long-term disability insurance.
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If short-term disability isn’t right for you or you have enough savings to support yourself during a short disability, consider long-term disability insurance — it’ll cover you for a lengthier period of time, though with a lower benefit amount.
Short-term disability insurance protects your paycheck during the initial weeks or months of your disability. It covers a broad range of injuries and illnesses, from pregnancy and childbirth to back pain and broken bones. But the coverage is limited and more often than not caps out at a year.
Compare your policy options with our comprehensive guide to disability insurance.
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