We, as people, tend to be optimistic. While we know that certain situations can easily cause disabilities, we tend to think that those will happen to someone else. And while you may retire without experiencing any significant disability, there is still a good chance that that will not happen. Therefore, disability insurance is something that all working people need to consider. But what is the difference between long-term vs. short-term disability insurance, and which one should you opt for? Well, let’s find out.
To properly understand disability insurance, you must go into the specifics of your industry. In this article, we will cover the broad strokes of what disability insurance is and how you can get it. But, to properly understand the costs and requirements you are likely to face, you must research insurance policies within your industries. As you can imagine, oil rig workers and programmers face different workplace dangers. That is why their disability insurance contracts can be substantially different.
Disability insurance – in a nutshell
Simply put, disability insurance is the financial coverage you get when you are physically or mentally unable to work. It is often called “disability income insurance.” Pregnancy, debilitating injuries, mental health issues and cancer qualify as legitimate reasons for claiming disability insurance. The name disability insurance can be misleading. You do not have to be a disabled person to claim it. Along with life insurance, disability insurance is one of the best ways of investing in a worry-free life.
Levels of insurance
Depending on the type of policy you choose payments and periods of coverage are adjustable. In most cases, disability insurance can cover up to 70% of your monthly income. The coverage period can range from 3 months up to retirement age. The important thing about disability insurance is that it pays benefits directly to you. Therefore, there are no limits or regulations on how you can spend the money.
It is a certainty that insurance is a great way to supplement 40-70% of your income However, that is dependent on how much premium you can fit into your budget. Overall, short-term disability insurance tends to be a bit more costly per month, but the recoverable amount is usually greater (usually70%).
Risk selection and risk classification is important when selecting insurance for disability income. The better coverage purchased the less worries you will have during the time of disability. The best way to plan the type of coverage you will need is to calculate your monthly expenses, including additional medical bills. This should be your guide to selecting accurate coverage.
The main difference between short-term and long-term disability insurance
As the names suggest, short-term and long-term disability insurance refers to the periods you wish to cover. The benefit is triggered following an injury or illness that prevents you from working for a specified amount of time. Short-term disability insurance usually covers a period of 3-24 months. Long-term disability insurance usually ranges from 5, 10, 20, even 30 years or until you reach retirement age.
Elimination periods
There are always elimination periods. These are periods that start from the time you first become disabled until the policy pays (as noted in the policy). This period can be 90 to 180 days for long-term disability there are no benefits paid during the elimination period. Short-term disability typically has a 14-day elimination period, but it can range from 7 to 30 days.
With short-term disability insurance, you will start getting benefits within a week or two after you are unable to work. You may need to wait a bit more with long-term disability insurance. The elimination period for long-term disability is usually 90 days, but it can vary. Therefore, when you select a disability policy, make sure to take the elimination period into account.
You should always consider other ways to cover your expenses during elimination periods. You could consider setting up an emergency fund to cover your living and medical expenses. If this is not an option, you may consider to a policy with a shorter elimination period (i.e., short-term disability) or invest in an accident or hospital plan.
Long-term vs. short-term disability insurance – what to opt for?
If you don’t have an emergency fund, short-term disability is the safer option. With it, you don’t have to suffer the long elimination period and will make ends meet far more easily. Long-term disability insurance is best used when setting up your life in general.
Should you get both long-term and short-term disability insurance?
As you’ve guessed, the best course of action is to get both. With short-term insurance, you will have the extra funds to survive the elimination period and cover short-term loss of income. On the other hand, with long-term insurance, you will set yourself up for a stress-free life. If you get a combined insurance policy, you can look to seamlessly transition from short-term to long-term and enjoy a steady income throughout.
Moreover, you can never be too safe. In different situations, you may need different types of insurance. For instance, if you have to relocate to a new home because of your disability, moving insurance may
come in handy. It will keep all your belongings safe and spare you additional stress.
How to get disability insurance
In most cases, you can get disability insurance from your employer at group discounts (just like with group health insurance) or even at no cost. Therefore, it is usually best that you start by asking your employer if there is an available policy. Whether you need an individual or group policy, Insureous Health Solutions can make sure you enroll in the best plan for your situation.
By Jassica Mendez
