Which is Better – Long or Short Term Disability Insurance?

Which is better: long or short term disability?Which is better, long or short term disability insurance? A better question might be which combination of elimination period, benefit duration, and premium cost best fits your personal needs?

Both policy types exist in the marketplace, and serve different needs and circumstances.

When comparing short term versus long term disability insurance it helps to understand where the two policy types overlap, what makes them different, and which set of life circumstances matches the policy features best.

How Short and Long Term Disability are Similar

There are many similarities to understand when comparing short versus long term disability insurance options. Understanding which is better starts by understanding features they share in common such as percentage of income replacement, disability definitions, and any versus own occupation definitions.

Both long and short term disability insurance are designed to replace a portion of your income. Both policy types may replace a fixed percentage (often sixty to sixty six percent) of your salary, up to a fixed monthly amount. The percentage configuration is designed to prevent over-insurance, and works the same way for both policy types. Long term policies may have a slightly higher hard dollar cap.

The disability definitions are often very similar as well. There will be a policy definitions for total, partial, and recurrent disabilities. Each company employs different language, so be sure to read the outline of coverage for a more valid comparison.

Occupation definitions are very important. Own occupation is a higher level of coverage; benefit payments are made if you are unable to perform the duties of your primary full time job. Any occupation definitions are looser; you may not receive benefits if you can perform any type of work. A person with a highly skilled occupation might need an own occupation definition.

Short term policies often cover own occupation definitions for the first year, then revert to any occupation in the second year. Some long term policies may provide own occupation coverage, while others do not. Again, check the outline of coverage for both policies.

How Short and Long Term Disability Differ

There are three primary differences between short and long term disability insurance: the elimination period, the benefit duration, and likely premium cost.

The elimination period is the length of time you must be disabled before benefit payments begin. Notice that both long and short term policies have elimination periods that differ, and ones that may overlap.

Common Elimination Period Options
0 Days 7 Days 14 Days 30 Days 60 Days 90 Days 180 Days 1 Year
Short-Term-Accidents X X X X X X X
Short-Term-Illness X X X X X X
Long-Term-Both X X X

The benefit duration is perhaps the most profound difference between the two policy types, although there still may a great deal of overlap.

A common misperception is that short term policies last just a few weeks or months. This is not true as you will see below. A more factual point – most disabling conditions are very short in nature, and may end before longer elimination periods kick in. And shorter disabilities are more frequent. Which do you think pays claims most frequently?

If temporary disruptions are your primary concern, ask your employer to offer a voluntary option as policies sold at work have the most flexibility.

Common Benefit Duration Options
3 Months 6 Months 12 Months 24 Months 5 years To Age 65
Short Term X X X X
Long Term X X X

Which is better for you – Short or Long Term Disability?

The better question is which set or short or long term disability policy features most closely matches your needs. The three most pronounced population segments that illustrate the point are couples planning a family, households living check to check, and medical professionals with student loan debt.

Couples planning to add a new family member are planning for mom to take a temporary leave from work to recover from childbirth. Short term disability covers normal pregnancy when purchased at work. It will cover this brief period when she can’t work for six to eight weeks – less the elimination period. A one week elimination period works best in these scenarios, and is only available on one policy type.

Can you guess which policy is better for new parents?

Approximately sixty percent of U.S. households live check to check. They may spend more than they bring in while healthy, borrowing money via credit cards, car notes, and mortgage refinancing – expecting to repay the loans with future income. Many households have little or no savings, or emergency fund set aside. But then a medical event happens, and an income is lost. In these scenarios, losing one month of income is enough to topple the entire house of cards, kill their credit rating and ability to borrow in the future.

A policy with a long elimination period might sink a household living check to check.

Many doctors, surgeons, chiropractors and other medical professionals pile up huge amounts of student loan debt to acquire their medical degree. They may need to use their hands and fingers to perform their jobs. While they often earn lots of money, and can allow for some savings and investments, it may take decades to repay their student loan payments. If unable to work, their emergency funds could sustain them for several months. But eventually those loans would need to be repaid.

A policy with an extended benefit duration, combined with an own occupation disability definition would be needed for this group.