What Is Long Term and Short Term Disability Insurance?

Are Your Finances Protected in Case of an Emergency?

Nurse using digital tablet with patient in hospital and collecting long term disability insurance.
Jose Luis Pelaez Inc / Getty Images

Long Term Disability Insurance

Long-term disability insurance (LTD) is an insurance policy that protects an employee from loss of income in the event that he or she is unable to work due to illness, injury, or accident for a long period of time.

Some estimates state that the average employee with long-term disability misses 2.5 years of work. Long term disability insurance does not provide insurance for work-related accidents or injuries that are covered by workers' compensation insurance.

However, long-term disability insurance ensures that an employee will still receive a percentage of their income if they cannot work due to sickness or a disabling injury. Long term disability insurance is an important protection for employees when the U.S. Census Bureau estimates that an employee has a one in five chance of becoming disabled.

Long term disability insurance is usually provided by employers, and there are a variety of differing plans available for employers to offer as part of a comprehensive employee benefits package. If a company doesn’t offer long term disability insurance or if an employee wants additional coverage, he or she has the option of purchasing an individual long-term disability plan from an insurance agent.

Most frequently, though, long-term disability insurance is available through the employer; it is expensive to purchase as an individual.

Long term disability insurance, provided by an employer, may be inadequate to meet a disabled employee's needs.

This is the second reason employees might want to consider purchasing supplemental long-term disability insurance.

Additionally, payments to the employee from their employer's long-term disability insurance are taxable income whereas payments from an employee purchased plan are usually not.

Long Term Disability Insurance Plan Coverage

Long term disability insurance (LTD) begins to assist the employee when short term disability insurance (STD) benefits end.

Once the employee's short-term disability insurance benefits expire (generally after three to six months), the long term disability insurance pays an employee a percentage of their salary, typically 50-70%.

Long term disability payments to the employee, in some policies have a defined period of time, for example, two-ten years. Others pay an employee until he or she is 65 years old, this is the preferred policy.

Each long term disability insurance policy has different conditions for payout, diseases or pre-existing conditions that may be excluded, and various other conditions that make the policy more or less useful to an employee.

Some policies, for example, will pay disability benefits if the employee is unable to work in his or her current profession; others expect that the employee will take any job that the employee is capable of doing–a big difference.

Long term disability insurance is an important component of a comprehensive employee benefits package. In fact, according to experts, long-term disability insurance coverage is as important to an employee as life insurance.

Employees are responsible for examining their employer's policy to ensure that it meets their needs. If not, employees are responsible for purchasing their own expanded coverage which may be available at a somewhat reduced rate through their employer's insurance carrier.

Short Term Disability Insurance Overview

Short term disability insurance is an insurance policy that protects an employee from loss of income in the case that he or she is temporarily unable to work due to illness, injury, or accident.

Short term disability insurance does not protect against work-related accidents or injuries, as these would be covered by workers' compensation insurance.

However, it ensures that an employee will still receive a percentage of income if they cannot work due to sickness or a disabling injury. This is an important protection for employees.

Short term disability insurance is usually provided by employers, and there are a variety of differing plans available for employers to offer their employees. Employees can provide group insurance packages as part of a benefits package.

If a company doesn’t offer short term disability insurance or if an employee wants additional coverage, he or she has the option of purchasing an individual plan from an insurance agent. Most commonly, though, the insurance is available through the employer.

Most short term disability insurance plans include certain specifications regarding the employee's eligibility to receive benefits. For example, some plans indicate a minimum service requirement, or the minimum length of time that a worker must have been employed for, and may require that the employee works full-time or has worked consecutively for a certain period of time.

In addition to these requirements, some employers specify that an employee must use all of their sick days before becoming eligible for short-term disability benefits. Employers may also require a doctor’s note to verify an employee’s affliction, commonly including illnesses such as arthritis or back pain, cancer, diabetes, or other non-work related injuries.

Short Term Disability Insurance Plan Coverage

Short term disability insurance benefits vary by plan. Typically, a package offers about 64% (usual range: 50-70%) of an employee’s pre-disability salary, as evident in the Bureau of Labor Statistics – Fixed Percent of Earning analysis.

Short term disability insurance plans may provide benefits for as few as ten weeks, but most commonly provide benefits for 26 weeks, according to the Bureau of Labor Statistics – Duration of Benefits. However, short term disability insurance plans vary by company, and the amount of the benefits received, may also vary based on an employee’s position or the amount of time he or she has worked for the employer.

Following the expiration of insurance benefits, many employers offer their employees access to the benefits available from a long term disability insurance provision.

Short term disability insurance is an appreciated employee benefit for employees and their family members. Short term disability insurance provides a welcome financial cushion, a safety net, in the event of an employee's short-term disability.

Please Note that Susan Heathfield makes every effort to offer accurate, common-sense, ethical Human Resources management, employer, and workplace advice both on this website, and linked to from this website, but she is not an attorney, and the content on the site, while authoritative, is not guaranteed for accuracy and legality, and is not to be construed as legal advice.

The site has a world-wide audience and employment laws and regulations vary from state to state and country to country, so the site cannot be definitive on all of them for your workplace. When in doubt, always seek legal counsel or assistance from State, Federal, or International governmental resources, to make certain your legal interpretation and decisions are correct. The information on this site is for guidance, ideas, and assistance only.

Find Your Next Job

Job Search by