Income replacement, not medical payment
Health insurance pays for care, such as doctor visits, hospital stays and prescriptions. It does not replace the paycheck you lose if you cannot work. That is the job of disability insurance, which pays a portion of your income when an illness or injury keeps you from working for a period.
Many employers offer disability coverage as part of their benefits package, either paid for by the employer, shared, or paid by the employee. Others do not offer it at all, and coverage rules vary by country, state and employer. Some places also have public programs that provide income support during disability, with their own eligibility rules. This article is general information, not insurance, legal or financial advice.
Short-term disability
Short-term disability (often abbreviated STD) generally covers shorter periods of being unable to work, commonly lasting from a few weeks to several months. Recovery from surgery or a difficult pregnancy and delivery are common examples, though what counts depends on the policy.
Typical features include:
- An elimination period. This is a waiting time before benefits begin, often measured in days or weeks. Employees may use sick leave or paid time off during this gap.
- A benefit percentage. The policy usually pays a percentage of earnings, not all of them.
- A maximum benefit period. Short-term benefits stop after a set length of time.
Long-term disability
Long-term disability (LTD) is intended for longer absences. It usually starts after short-term benefits run out, or after a longer elimination period, often months. It can continue for years, sometimes until a certain age, depending on the policy. Policies typically define disability in stages. In the early period, you may qualify if you cannot do your own job, and later the test may become stricter, such as being unable to do any job suited to your training and experience. The exact wording differs by policy, and it matters a great deal.
A hypothetical example
These numbers are invented for illustration only.
Imagine someone earning $4,000 per month whose short-term policy pays 60 percent of earnings after a 14-day waiting period. The monthly benefit would be 0.60 x $4,000 = $2,400. That is $1,600 less than the normal paycheck. If the benefit were paid for 12 weeks, the person would need to plan for the lower income during that time. Whether the benefit is taxable often depends on who paid the premiums and local rules, so it is worth asking.
How disability benefits differ from medical coverage
| Feature | Medical coverage | Disability benefits |
|---|---|---|
| What it pays | Costs of care | A portion of lost income |
| Paid to | Usually providers | Usually the employee |
| Triggered by | Receiving covered care | Being unable to work, as defined by the policy |
| Duration | As long as coverage is in force | Limited by waiting and benefit periods |
The two can overlap in time. Someone recovering from an injury might use medical coverage for treatment and disability benefits for income. A disability claim usually depends on medical evidence, so records from your providers play a role.
Terms worth understanding
- Definition of disability. Does the policy cover your own occupation or any occupation?
- Pre-existing condition clause. Some policies limit benefits for conditions you had before coverage began. Look at how the policy defines these and for how long. How pre-existing conditions are treated in health insurance can differ from how they are treated here.
- Offsets. Benefits may be reduced by other income, such as other disability payments.
- Exclusions. Common examples include self-inflicted injuries or certain activities, but they vary.
- Portability. If you leave your employer, group coverage generally ends, though some plans allow conversion or continuation. Check the details; this is different from continuation coverage for health insurance.
- Return-to-work provisions. Some policies allow partial benefits if you return part-time.
What to do with this information
If your employer offers disability coverage, look at the cost, the elimination period and how the benefit is calculated. Some employers offer a basic amount at no charge and let employees buy more. If coverage is voluntary, consider your savings, other leave and household expenses when thinking about whether it makes sense. Outcomes are uncertain, since a claim is decided under the specific policy terms.
If you need to make a claim, keep copies of forms and correspondence, and ask the plan administrator what documentation is needed. If a claim is denied, the policy generally describes how to appeal.