Short term disability insurance (STDI) is a form of coverage that ensures you’ll continue to receive income if you’re unable to work due to an injury or illness sustained outside of your job. Typically, an STDI policy provides you with 60% to 70% of your salary for a period of up to two years after the start of your disability. STDI is commonly offered through an employer, at no or low cost, as an employee benefit. It’s also available for individual purchase through an insurance agent or directly from an insurance company.
How short term disability insurance works
An STDI policy is a contract between you and an insurer. That contract states that so long as you pay (or your employer pays) an amount of money to the insurance company called a premium, the company will pay you in the event an illness or injury causes a disability that prevents you from working and earning your regular paycheck.
STDI policies vary by insurance company, but generally they specify several things.
- The amount of premium and the payment terms — The amount you pay in premium will depend partly on what you earn as salary, along with other factors (more about this in a bit). The policy will also state how frequently payments must be made.
- What it considers a disability — The policy will include a list of the specific conditions it considers to be a qualifying disability.
- Any pre-existing conditions that would not be covered — The policy will list any pre-existing conditions that would not be eligible to receive a benefit. It may also list excluded conditions (conditions for which it will not provide a payment) that result from your participation in high risk activities.
- The benefit amount — The policy will specify how much the insurance company will pay. Typically this is 60% to 70% of your base salary. The company may also cap the benefit, regardless of your income. These caps typically range from $5,000 to $6,500 per month.
- The benefit period — The policy will state how long it will pay the benefit. Generally, STDI pays benefits for no longer than six months, though some policies pay for as long as two years.
- The elimination period — Finally, the policy will state how long you have to wait from the time the injury or illness occurs until you start receiving your benefit. This is referred to as the elimination period. For an STDI policy, this may be anywhere from one day to one month.
What short term disability insurance cover
Your STDI policy will list the conditions it considers eligible for disability benefits. These vary by policy and by insurance company, but generally include temporary injuries and illnesses that are less serious in nature, and/or from which you’re able to recover in a matter of weeks or months. They might include the following:
- Short term illnesses
- Post-surgery recovery
- Non work injuries
- Back and joint disorders
- Digestive problems
- Pregnancy complication
- Maternity leave
Covered surgical procedures typically include only those that are medically necessary, though procedures such as bariatric surgery and organ donation are often included. Cosmetic surgery is an example of a procedure that often is not covered.
Childbirth is another common use of STDI. Policies typically provide up to six weeks of benefits after a normal delivery, and eight weeks for a C-section delivery. The policy may pay additional benefits if there are complications during pregnancy or delivery.
An STDI policy may disqualify certain preexisting conditions. This means you have the condition when you purchase the policy, so the insurer is not obligated to provide coverage for any related disability. Such preexisting conditions may include HIV/AIDS, cancer, heart disease, diabetes, or neurological disorders.
Similarly, an STDI policy may exclude disabilities that arise out of your participation in what it deems to be risky activities, such as committing a crime, participating in a riot, or inflicting an injury on yourself.
The cost of short term disability insurance
If you’re planning to purchase STDI individually, either directly from an insurance company or through an agent, the amount of premium you’ll pay is going to depend on several factors. Unlike with LTD policies, insurance companies usually do not engage in full underwriting to determine a policy’s premium. Underwriting is a process by which the insurance company fully assesses your “risk” of filing a claim. For an LTD policy, underwriting may include an interview and medical exam.
For an STDI policy, the insurance company may only ask you a few questions about your health and medical history. These are to help determine if you have any preexisting conditions. Beyond that, you can expect your premium to vary depending on the following:
- Your income — Because STDI benefits are based on a percentage of your income, you can expect to pay more in premium if you earn more.
- Length of the benefit period — You may have a choice of how long you want to receive benefits should you ever file an STDI claim. The longer you choose to receive a benefit, the more you can expect to pay in premium.
- Length of the elimination period — As explained earlier, all policies have an elimination period. This is an amount of time, generally one day to one month, that elapses between the event that causes the disability and the first benefit payment. The shorter your elimination period, the more you can expect to pay in premium.
So, what will an STDI policy cost? It depends on how the above factors combine. According to one analysis, sample policies cost between $77 per month and $105 per month in premium. Note that STDI policy premiums are not tax deductible, however any benefit paid to you does not have to be accounted for on your taxes. (Be sure to consult with your tax preparer to better understand the implications of your insurance premiums and benefits.)
Short term disability insurance and other types of coverage
Short term vs long term disability
It may be easy to confuse what STDI does with what long term disability (LTD) insurance does. The fact is that STDI and LTD have a similar purpose, and can be thought of as complimentary types of insurance.
As the label implies, LTD is for longer-lasting, less temporary conditions. These include things such as arthritis, cancer, mental illness, diabetes, heart disease, or stroke. The benefit is generally a bit higher than STDI — usually up to 80% of your salary, depending on the policy. And the benefit period is typically measured in years; some policies will even pay the benefit until you reach retirement age. LTD also has a 90-day (or longer) elimination period.
Short term disability vs workers compensation
Another common point of confusion relates to the differences between STDI and workers compensation. Each is designed to help you maintain your income if you’re unable to work due to a disability. However, workers compensation applies only to injuries or illnesses sustained on the job. Likewise, STDI applies only to disabilities that arise from injuries or illnesses sustained outside of work.
How to get short term disability insurance
The most common way to get STDI is through your employer, as group coverage. According to a 2020 report by the U.S. Bureau of Labor Statistics, 40 percent of private industry workers had access to STDI through their employer. The same report states that companies paid the full cost of STDI for 85 percent of workers.
So if you’re fortunate enough to work for a company that offers STDI group coverage (and perhaps pays for it), check with your human resources department to find out how you can apply.
If your company doesn’t offer this benefit, you can purchase coverage much like many other forms of insurance. Policies are available directly from disability insurance companies, and often can be bought online. Or you can contact an agent in your area who offers STDI. In most cases, you’ll need to answer a few questions to help the insurance company better understand your health and medical history.
Short term disability insurance: to buy, or not to buy?
Many employers offer STDI group coverage to their employees as a perk of employment. If you happen to be in this situation, then it’s a no-brainer. If your company subsidizes the premium, so you pay just a small amount, then it’s still probably worth buying.
But if you’re not one of these lucky ones, and you’re considering purchasing STDI on your own, know that many experts advise against it. Fact is, STDI is relatively expensive — on par pricewise with LTD insurance — for a benefit that usually lasts only a few months.
A better bet would be to do what many financial experts recommend: keep three to six months’ worth of salary stashed away in an emergency fund. This could come in handy not only if you’re disabled for a short period, but if you should find yourself laid off or furloughed, need an urgent repair around the house, have damage to your car that’s not covered by your car insurance policy, or any number of other all-too-common emergencies.
Filing a short term disability claim
If you do become injured or ill, and believe your condition is covered under your policy, you’ll need to file a claim with the insurance company. The company or your agent can advise you on what steps to follow. Generally, however, you can expect to fill out a claim application form that asks questions about the nature of your condition, how and why it’s preventing you from working, and the date you were last able to work. Sections of the form will be filled out by your employer and doctor.
Submit the form and wait to hear back from the insurance company. The company will review the information that you, your employer, and your doctor have provided, and determine if your condition is covered per the terms of your policy.
Short term disability helps you maintain your financial health
Hopefully you’ll never be in a situation where you’re disabled and unable to work. But if that should happen, you’ll want to be sure you can take care of yourself and your family financially while you recover. STDI helps ensure you continue to receive at least part of your regular income until you’re back to work.
Frequently asked questions
Can my employer deny me short term disability insurance?
Your short term disability policy will have a list of preexisting conditions that are not covered. These include serious illnesses such as cancer, heart disease, and diabetes. If you have one of these conditions at the time the policy goes into force, and you later have a disability related to that condition, you can expect your claim to be denied.
STDI policies also have lists of excluded activities, such as committing a crime. Any disability you receive as a result of an excluded activity would likely not be covered.
What happens if my short term disability claim is denied?
The insurance company will let you know in writing if your claim is denied. By law, this letter must outline the specific reasons for the denial, and what you must do if you want to file an appeal.
If you think the denial is incorrect and wish to appeal, be sure to read the letter carefully and follow all of its instructions. You might also consider contacting an attorney to help you with this process.
What’s the difference between short term disability insurance and FMLA?
The Family and Medical Leave Act (FMLA) is a law that was passed by Congress in 1993. It ensures that eligible employees can take unpaid, job-protected leave for specified family and medical reasons while having their employee-provided health insurance coverage continue during that leave.
FMLA thus does not ensure that the employer will pay you while you’re not working (though many employers will allow employees to use accrued paid vacation time during leave so they do receive some income). STDI, on the other hand, ensures you receive some income while you’re off the job.
Who should consider purchasing short term disability insurance?
While many financial experts advise against buying STDI (if it’s not provided to you by your company), there are some people who may want to consider it. These include those who are self-employed, those who are concerned about the longer elimination period (usually 90 days) before LTD insurance benefits start, those who don’t wish to dip into their savings in an emergency, and those who are the sole breadwinner in their family.