Short-Term vs. Long-Term Disability - What’s the Difference?

Accidents can happen at the most unexpected and inconvenient times. While health insurance can help with medical bills, consider how many accidents can render a person unable to work and how quickly that can impact a financial situation.

That’s why many job-seekers are considering disability insurance to cover them in case of injury, illness or other life-changing events.

Offering disability insurance as part of a benefits package is a good way to provide more security for your employees and attract  better talent. Both short-term and long-term disability insurance are common benefits offered by employers at a relatively low cost. Depending on your situation, you may also need to know about disability insurance and accommodations to remain compliant with state and federal law. 

As an executive or Human Resources professional, you will have an important role to play in selecting, developing, or administering this type of benefit in your organization.
‍

What is Disability Insurance?

Before we dive into the specifics of short and long-term disability, let’s first understand the basics of disability insurance commonly offered by employers. We will then cover how these elements differ for each type.

Defining Disability

In general, a disability that qualifies for insurance is something that makes an employee unable to work for a period of time or incapable of doing a certain aspect of his or her job. While there is no formal definition for the word in this case, the ADA (Americans with Disabilities Act) does provide some insight into the legal definition. 

According to the federal government,

“the definition of a person with a disability is typically defined as someone who (1) has a physical or mental impairment that substantially limits one or more ‘major life activities,’ (2) has a record of such an impairment, or (3) is regarded as having such an impairment.” 

That said, short-term and long-term disability often cover events outside of the ADA requirements and worker’s compensation. Relevant definitions will often be outlined in your specific policy. Still, you will want to consider each of these when administering or designing a benefits package to know where you stand with what you are offering your employees. 

Enrollment

Typically, employers will offer both short-term and long-term disability insurance as part of a larger benefits package. This can be usually done through a third-party insurance company at a discounted group rate. 

With this type of setup, enrollment for each employee is a guaranteed case. This means that each new member is automatically approved for the policy regardless of any pre-existing conditions or other factors that may limit individual enrollment. 

How It Works

While each policy differs in what is covered and for how long, the main differences between short-term and long-term disability are in the elimination period and the benefit period. 

Elimination Period

This is the period of time that must pass before the benefits start to pay out. This is sometimes called the waiting period. In either case, the time elapsed is used to eliminate certain cases where the employee may recover faster or not require payment as expected

Benefit Period

This is the period of time for which the employee may receive benefits. In other words, the benefit period defines how long the insurance will provide regular payments to the employee with the disability. 

Job Security

It is worth noting that while disability insurance is good for providing financial security to your employees, neither option guarantees job security upon recovery. In many cases, employees may be legally terminated during the benefit period.
‍

Short-Term Disability

Short-term disability often covers events that affect an employee for a shorter period of time. While it is not often required, employers in California, Hawaii, New Jersey, New York, and Rhode Island are legally mandated to offer this benefit to full-time employees. 

Coverage

Non-work related injuries, severe illnesses, surgeries, pregnancy, and the birth or adoption of a child are often covered by short-term disability. Since these are events that people recover from fairly quickly, this type of insurance is more commonly offered by employers than long-term disability.

Elimination Period

For short-term, the elimination period can last anywhere between 1-7 days. This period will usually begin from the date of injury. 

Benefit Period

Many short term policies provide payment for a period of around 30 days. However, some benefit periods can last up to 6 months. This will sometimes vary based on the policy and the specific type of disability. Most short-term benefits pay out at 50% - 75% of an employee’s regular pay, and there are no restrictions on usage.
‍

Long-Term Disability

Long-term disability generally covers events that affect an employee for a period longer than 6 months. This type of insurance can also cover permanent disability from which the employee never recovers. 

For this reason, many employers do not offer long-term disability. However, in cases where it is part of the benefits package, employees are often required to share a portion of contribution with the employer by paying into the plan on a regular basis. While short-term is required in some states, long-term disability is not required for full-time employees in any state.

Coverage

Cancer, heart attacks, and some mental disorders are often covered under long-term disability. This can also include more severe injuries, some lasting conditions like arthritis, and even retirement plans.

Elimination Period

Typically employees must wait between 90-180 days to receive benefits from long-term disability. Many employers also require beneficiaries to be full-time and employed with the company for a certain number of years before becoming eligible for this benefit. 

Benefit Period

Because long-term disability can include retirement, benefit periods may range widely based on the type and severity of the claim. In many cases, the benefit period is between 6 - 36 months. However, some periods may last for up to 20 years. Long-term disability often pays out between 50% - 80% of the employee’s wages before the disability. There are also no restrictions on how the recipient may use the funds.
‍

Final Thoughts

Whether you already have a benefits package that includes disability insurance, or you’re setting up a new plan, it’s important to know the difference between short-term and long-term disability coverage.

Brush up on state and federal laws to know whether or not you are in compliance with what you offer your employees as security. When accidents happen, your employees will thank you for providing them with security through a difficult time.