Short Term vs Long Term Disability Insurance for Employers

According to one recent study, there are at least 51 million adults in the United States without any type of disability insurance coverage. When you also consider that every year about 5% of workers experience some type of short-term disability situation due to illness, injury, or pregnancy, it's easy to see why that lack of coverage is such a big problem.

But what are the differences between short-term and long-term disability insurance policies? What do they mean for employers who want to run the best business they can? The answers to those questions require you to keep a few key things in mind.

A young woman in a leg cast holds a corgi dog in her lap - she knows the difference between short term vs long term disability

How Does Disability Insurance Work?

At its core, disability insurance is provided by employers to employees in an attempt to protect the latter's ability to earn a paycheck should certain conditions arise. Note that while this is similar in concept to workers' compensation insurance, it is not the same thing and should not be treated as such. Workers' compensation insurance offers things like partial wage coverage should someone be injured while on the job.

Disability insurance, on the other hand, provides partial wage coverage for situations where the employee becomes A) disabled while away from work, and B) can no longer complete their duties and earn a living.

Benefits of Employee Disability Insurance

The biggest benefit of employee disability insurance is that it helps take care of someone in their time of need. If employees become injured or disabled while at home and are unable to earn an income, that can be an incredibly stressful situation to be in. Employee disability insurance provides coverage for at least some of that income, giving them less to stress out over so that they can focus on the recovery and the healing process.

In a larger sense, offering employee disability insurance (both the types that are required by law and those that are optional) benefits employers as well. It helps show employees that you truly care about them and their needs, which goes a long way toward increasing both engagement and morale. The more invested people are in their workplace, the more productive they typically are.

What is a Short-Term Disability Policy?

Short-term disability insurance pays out a portion of an employee's income, but it does so under the full assumption that this situation is temporary. Many estimates indicate that this type of insurance can provide between 50% and 60% of someone's wages.

What is Considered Short-term?

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Typically, "short-term" is defined as any period of between nine and 52 weeks. The actual definition will vary depending on the plan in question.

It's also important to note that many short-term disability policies don't begin until after a predetermined waiting period has passed. This may be between seven and 14 days depending on the situation. If an employee needs financial assistance during this time, they may be forced to take paid time off, sick time, or take advantage of other leave-related benefits their employer offers.

What is Considered "Disabled"?

To qualify to take short-term disability policy benefits, an employee needs to both be unable to perform the duties required by their job and also have that confirmed by a medical professional. For some, this may be a condition as common as something like pregnancy, especially if the pregnant person is considered high-risk. Recovering from surgery or some other type of physical injury would also likely require someone to utilize short-term disability benefits.

What is a Long-Term Disability Policy?

Long-term disability benefits, on the other hand, are much more open-ended in nature. There are certain types of injuries or illnesses that a person might not ever recover from - at least not 100%. In those situations, long-term disability policies can provide them with between 60% and 80% on average of the wages they lost so that they can focus on their own recovery as much as possible.

What is Considered Long-term?

Generally speaking, long-term disability policies usually specify periods of two, five, or even 10 years of coverage for the recipient. Having said that, it can also be utilized for life on certain types of policies - it will depend on the conditions of said policy at the time the injury took place or the illness developed.

What is Considered "Disabled"?

In many cases, the definition of "disabled" will be the same as the one outlined above - an employee is unable to perform the duties required of their specific job due to injury or illness. However, some insurance companies define this as being unable to do any type of work within the context of long-term disability policies, so it's best to make sure you understand the exact parameters that you're operating in before offering anything to your own employees.

Differences Between LTD & STD Coverage

The main differences between short-term disability (STD) and long-term disability (LTD) insurance can be summarized as follows:

Duration of Coverage:
STD: Provides benefits for a relatively short duration, often ranging from a few weeks to several months.
LTD: Offers benefits for an extended period, which can last for several years or until the policyholder reaches retirement age, depending on the policy terms.
Waiting Period:
STD: Typically has a shorter waiting period (elimination period) before benefits begin, often a matter of days.
LTD: Usually has a longer waiting period, which can be several months. This reflects the expectation of more extended disabilities.
Coverage for Disabilities:
STD: Covers disabilities that are expected to be short-term or temporary in nature, such as temporary illnesses, surgeries, or minor injuries.
LTD: Covers disabilities resulting from long-term or permanent conditions, such as chronic illnesses, major injuries, or permanent disabilities that hinder the ability to work.
Benefit Amount:
STD: Provides a percentage of your regular income (typically around 50-70%) to offer partial income replacement during a short-term disability.
LTD: Also offers a percentage of regular income, aiming to provide more comprehensive income replacement during long-term or permanent disabilities.
Employer or Individual:
STD: Can be provided by employers as part of their employee benefits package or purchased individually.
LTD: Commonly provided by employers, but can also be purchased individually. Individual policies often offer more flexibility in terms of coverage.
Common Uses:
STD: Used for temporary medical conditions, surgeries, or minor injuries that require time off work. STD helps bridge the gap until the individual can return to work.
LTD: Used for more serious disabilities, such as chronic illnesses, major injuries, or permanent medical conditions that hinder the ability to work for an extended period. LTD provides ongoing income replacement.

Should My Company Offer Disability Insurance?

The most important thing to understand about this question is that there are some states that actually mandate companies offer disability insurance coverage - which is to say that you may not have a choice. Be sure to check the list to see if this describes your situation.

If you're not required to offer it, however, you'll want to consider a few things very carefully to see whether this is the right move to make for your business. Obviously, you want to offer the highest quality benefits plan so that you can attract top talent; but if this additional cost is one you cannot afford, it's not a good idea - plain and simple.

The same young woman sits, her face out of frame, with the corgy laying by her feet - they are both relaxed because they have employee disability insurance

If you can afford it, however, you should likely do so for a lot of the benefits outlined above. It helps make your employees happier, which makes them more productive, which ultimately impacts your bottom line in the best possible way. It also makes it easier to not only bring top-tier workers into the fold but to prevent them from looking elsewhere and jumping ship as well.

BIS Benefits, Georgia's Top Benefits Broker

At BIS Benefits, we're proud of the reputation we've been able to earn over the years as one of the leading benefits brokers operating anywhere in the state of Georgia today. We always take the time to learn as much about our clients as possible so that we can better understand not only what you want, but what you and your employees need. That way, we can put together the right benefits plan for your workforce, all while keeping within your budget requirements as well.

In addition to helping with short-term and long-term disability concerns, we also handle group health, dental, vision, critical illness coverage, voluntary benefit offerings, and more. All of this is so that you can focus less on benefits and more on running your business, exactly the way it should be.

If you'd like to find out more information about the major differences between short-term and long-term disability insurance for employers, or if you'd just like to discuss your own benefits needs with someone in a bit more detail, please don't delay - contact BIS Benefits today.