Although many Americans are aware of the importance of life insurance coverage (with approximately 44 percent of households carrying at least some coverage), the number of American households with short- and long-term disability coverage is much lower. The paradox of this coverage gap is most individuals are much more likely to suffer a debilitating injury than an untimely death -- and such an injury can have a permanent impact on your long-term earning potential. Luckily, there are a number of short- and long-term disability insurance policies available.
Read on to learn more about what these types of disability insurance claims will cover to determine whether they are a worthwhile addition to your portfolio.
What do short- and long-term disability policies cover?
These policies are generally complementary -- in many situations, the only coverage difference is the length of time for which you can receive benefits. Once your short-term disability coverage has been exhausted, your long-term disability coverage should kick in.
- Short-term coverage
In general, short-term disability policies will cover a portion of your salary (usually between 50 and 70 percent) while you are unable to work due to your injury or illness. If your policy is paid by or purchased through your employer, you may be required to use up paid sick days or other leave before you become eligible for short-term disability pay.
Depending upon the specific policy and your state's minimum coverage laws, you can expect to receive coverage for at least 10 weeks, but generally no more than 26 weeks (or 6 months).
You may also be subject to lifetime maximums. For example, if you receive 6 weeks of short-term disability pay after an operation, and then a few years later take 26 weeks of short-term disability after a heart attack or serious injury, you may be prevented from filing further claims under your policy. Not all policies have these maximums, but you should be aware of your policy's specific coverage to ensure that you don't do anything to jeopardize your receipt of future benefits.
- Long-term coverage
Once you've exhausted your short-term disability coverage and it appears you will not be able to return to work soon, your long-term disability coverage should kick in. This insurance can include coverage for long-term care (such as a nursing home or assisted living facility) as well as payments to help supplement the loss of income that can result from a chronic illness or other disabling condition.
Like short-term disability coverage, long-term coverage can provide a portion of your salary for an extended period of time. Many long-term disability policies are designed to help bridge the gap in time between the onset of your illness or disability and your qualification for Social Security Disability (SSD) payments.
What about maternity coverage?
Many short-term disability policies also cover maternity leave, and may even kick in before the baby is born if you need to be on bedrest or have another complicating condition. In general, you'll be eligible for 6 weeks of paid short-term disability leave if you have a normal delivery, and 8 weeks or more if you have a c-section or other complications.
How can you purchase this insurance?
Many employers offer short- and long-term disability coverage as a fringe benefit -- similar to health or life insurance. Because employers are able to purchase this insurance in "bulk," it can be available at a deep discount when compared to the purchase of a policy on the open market. However, this insurance is often not "portable," so if you lose your job, you may also lose coverage at a time when you need it most.
However, you should be able to purchase private disability insurance on the open market. Although this coverage may be a bit more expensive than the coverage offered by your employer, you have the advantage of being able to keep this coverage while changing jobs, moving, or even divorcing.