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Short Term vs Long Term Disability: Which Should Small Business Owners Get?

October 8, 2019
Man is filling in Disability insurance form.

Health insurance is an important benefit for your employees, but it doesn’t cover situations where someone is out of work due to a disability. Lack of coverage has serious consequences, with 15% of consumer bankruptcies * due to illness or injury.

If you want to provide disability insurance, you should look at short term vs. long term disability. Both have benefits, but it’s important to know their differences before deciding which to provide. 

What is Disability Insurance?

First, it helps to understand that disability insurance is different than workers’ compensation. Workers’ comp only covers situations where an employee is injured while on the job.

If you offer employer disability insurance benefits, though, your employee is covered for injuries or illnesses sustained outside of work. These benefits provide supplemental income for someone who’s unable to work for an extended period.

Short-Term Disability Benefits

As the name implies, short-term disability (STD) covers shorter periods of time when someone is unable to work, typically between three and six months.

Employer-paid short-term disability often has a waiting period before going into effect, although the length of time differs. You may also require your employees to use any existing paid time off (PTO) before starting to use STD.

Once the disability period starts, your employees will receive between 60% and 80% of their base pay. Even though it doesn’t match the full salary, this will help pay for essentials.

Some common situations covered are:

  • Maternity leave
  • Short-term illness
  • Recovery from medically-necessary surgery
  • Joint disorders

It’s also important to note what isn’t covered. Pre-existing conditions are often excluded from STD benefits, as are mental illnesses and cosmetic surgeries.

Before answering the question, “Should I get short term disability insurance?” you should also consider the long-term disability option.

Long-Term Disability Benefits

The biggest differences between short term disability vs long term disability are the length of coverage and situations included.

Long-term disability (LTD) extends for years, sometimes until the employee retires. As with STD, it won’t pay out the full amount of a salary, and at 60% of pay, it might be a lower rate than the STD. 

Unlike STD, LTD will cover mental illnesses such as depression, as well as cancer and other chronic illnesses. In certain situations, pre-existing may be covered, but it’s not a guarantee.

If you’re wondering how does long term disability work for the advantage of the employee, it saves them from devastating financial loss. When someone is unable to work for years due to a chronic illness or injury, LTD benefits can help them keep their home and have some stability.

Making the Choice Between Short Term vs. Long Term Disability

As a small business owner, you have lots to consider when deciding on short term vs. long term disability insurance.

You might decide that long-term disability is a better option since it’s often more cost-effective and lasts longer, but it can also depend on the nature of your work and how many employees you have.

Whichever option you choose, your employees will appreciate the additional coverage.

Do you need help sorting through the complexities of providing benefits? Contact us today to see how we can help simplify the process.