Is it worth it to get short-term disability insurance?

Most people are offered short-term disability insurance (STDI) via their employee benefits program by their employer.  Unfortunately that is not the case for the self employed, independent contractors, or employees of small businesses.  

Employers offer this type of coverage because they know there is a gap between an event which results in an employee becoming temporarily or permanently disabled and the point where long term disability benefits kick in.  Short term disability is offered by a number of carriers, not all policies are created equal, and there is quite a bit of misinformation out there.  It is important to know the right questions to ask:

  • How does short-term disability insurance work?
  • What is the difference between long and short term disability?
  • Is it worth it to get short-term disability insurance?
  • Are there alternatives to disability insurance?
  • Why choose Colonial Disability Insurance?

How does short-term disability insurance work?

If a medical emergency renders you unable to work for an extended period of time, how would you pay your bills?  According to the Federal Reserve “About 46 percent of Americans said they did not have enough money to cover a $400 emergency expense. Instead, they would have to put it on a credit card, borrow from friends or family, or simply not cover it at all.  “Won’t happen to me” you say?  The Council for Disability Awareness determined that 1 in 4 American workers will go through a period of disability during their working years.

Most disability insurance carriers define a disability as: any medical condition, for which you are undertake care of a physician, that stops you from working.  Depending on your policy pregnancy may also be a covered.  

Short-term disability insurance replaces your income for a short period of time, generally 3 to 6 months, in the event that you experience a disabling event.  More often than not these events occur due to critical illnesses like cancer and heart attack, rather than workplace related injuries.  

STDI policies general start paying benefits immediately after you are under a doctors care.  Benefits are paid based on the amount of coverage you selected, and qualified for at the time the policy was originally written.  The checks are cut directly to you and can be used how ever you choose.

What is the difference between long and short term disability?

Depending on which STDI policy you choose, it may or may not cover you for the entire duration of your disability.  In order to have benefits continue for a long term disability you may want to pair your STDI policy with, you guessed it, long-term disability coverage (LTDI).  Long-term can be a bit more expensive, so it is important to understand your options and pair them properly with your budget.  I’m sure the question running through your head right now is “How much does short term disability insurance cost”, which you can find a detailed answer to here.  Or, if you’d rather find out exactly how much it would cost for you then get started with some quotes now! 

LTDI policies serve the same purpose as short-term disability insurance, which is income replacement in the event that you can not work.  The main difference is how long you have to wait for benefits to kick in, and hold long the benefits will continue to be paid.  The key term you need to be familiar with when it comes to long-term disability coverage is the “Elimination period.”  This term stand for the amount of time you will need to wait after a qualifying disabling event occurs for benefits to begin to be paid.  The elimination period can be as short as 90 days, or as long as 360 days depending on what you choose.

So, long story short, STDI benefits kick in right away, but generally only last for a maximum of 6 months.  LTDI benefits will last for years, but there is a waiting period before benefits kick in. 

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Are there alternatives to disability insurance?

The main alternative financial experts suggest to short-term disability insurance is having enough cash in savings to cover your salary for 3 to 6 months.  For the majority of Americans that is not the case, and saving enough money to get to that point can take a long time.  

With the average monthly cost of a short term disability policy being relatively low, it  can take between 10-15 years of paying premiums to equal the amount the policy will cover for just one claim. The whole reason insurance in general exists is to allow you to limit your exposure to financial loss.  

Even if you do have six month of salary in savings, is it worth it to risk it being wiped out rather than paying what equates to less than a cup of coffee a day to protect it and the rest of your assets? That is, unless you get your coffee at Starbucks, then we are talking about two less Carmel Frappachinos a week!

Is it worth it to get short-term disability insurance?

Choosing to forego insurance and pay for a loss yourself is know as self-insuring.  There are just not a lot of scenarios where self insuring makes a lot of sense, even if you have a substantial amount of money in the bank.  

Lets use another type of insurance as an example that is more common to the general consumer, auto insurance.  Do you include collision coverage on your policy so that your car is repaired in the event you are in an accident?  If you said “Yes” you are among the 73% majority of other Americans.  This coverage costs you an average of additional 15-20% on your annual auto insurance premiums.  Could you put that money in savings, and use it in the event that you are in an accident?  Absolutely!  Why don’t you do that?  Because it would take years of those savings to cover one accident.  Disability insurance is no different.

Everyones needs are different, but we find that it is more common for individuals to experience shorter periods of being out of work due to injury or illness, than being disabled on a long term basis. The financial impact of being out of work for just a couple of months can be devastating, and take many years to recover from.  

The United States Government does have programs in place for individuals who become disabled and are unable to return to work, namely SSDI (Social Security Disability Insurance).  While the program does have a strict approval process the coverage is there for those who qualify.  They do not on the other hand provide any form or short-term disability benefits.

These are just a few of the main reasons we believe it is worth it to have short term disability insurance coverage in place.  There are a variety STDI and LTDI options, but the reality it that you should definitely consider having at least one, if not both in place.  

If you are wondering what is the best disability insurance for you, the single most important thing to know is: the best disability insurance is the one that you can afford and gives you the benefits you need most.