By Joe Dyton, WCI Contributor

A lack of an emergency savings account can be overcome—as long as you keep working, earning a paycheck, and avoiding surprise expenses. Sounds like a risky way to operate, doesn't it? That’s why it is critical to have some sort of financial safety net in place. Ideally, that is 3-6 months of living expenses saved in case you lose your job. But what if you didn’t lose your job but were injured or got sick and couldn't work (and earn an income) for an extended period and had minimal savings? In that instance, hopefully, you have short-term disability insurance. This insurance policy could help keep you afloat financially for a few weeks or months until you are back on your feet and can return to work. Your benefits wouldn’t pay your full salary, but hopefully enough to meet your monthly obligations.

Keep reading to learn more about how short-term disability insurance works, how much it costs, and how you can get a policy.


What Is Short-Term Disability Insurance?

Short-term disability insurance is an income replacement benefit. It provides a portion of your pre-disability pay while you’re unable to work due to a disability claim. Typically, short-term disability insurance covers injuries or ailments that happen away from work—workers’ compensation helps cover expenses if you were out of work due to an on-the-job injury.

This insurance serves as a backup for your weekly paycheck so your income is protected. It allows you to still make monthly payments for expenses—such as your rent or mortgage, car loan, and utilities—in the event you’re unable to work.


Short- vs. Long-Term Disability Insurance

Given that “short” is in this type of insurance’s name, it would be safe to assume that there’s also long-term disability insurance. That assumption is accurate, and there are key differences between these two types of coverage.

As previously mentioned, short-term disability insurance is deemed short-term because benefits typically last up to a year at the most. Meanwhile, long-term disability insurance benefits are paid monthly, and they can be available until you reach the normal retirement age or turn 65.

Another key difference between these coverages is what they protect. Short-term disability covers your compensation when injuries or illness prevent you from performing your current job. Long-term disability insurance protects your pay when you can't work any job because you’re hurt or sick.

More information here:

Ins and Outs of Disability Insurance


How Short-Term Disability Insurance Works

It's similar to other insurance policies. With short-term disability, you pay a premium and are paid out in the event that you need it. How your policy works will depend on your provider and the state in which you live. A traditional short-term disability insurance policy would have your employer pay the full premium.

Other options include contributory, where you and your employer share in the costs (your contribution would be taken out of your paycheck); core buy-up, which allows you to buy additional coverage; and voluntary in which you’d be fully responsible for paying for disability benefits.

If or when the time comes that you need your benefits paid to you, you’d receive pay replacements each week that would be somewhere between 40%-70% of your standard wage.


How Long Does Short-Term Disability Insurance Last?

Short-term disability insurance

Short-term disability insurance is called “short” for a reason. A policy can provide wage replacement for up to a year, but a typical coverage period lasts closer to 3-6 months. If your injury or illness looks like it will keep you out of work longer than the benefits will pay out, you may need to explore a long-term disability policy to keep receiving benefits.


How Much Is Short-Term Disability Insurance?

A short-term disability insurance policy will cost you approximately 1%-3% of your income. Your individual rate could vary, however, depending on your age, health status, and job. Your policy’s features also will play a role in the cost. For example, you may opt to include some insurance riders in your policy, which would cost extra (others are free).

More information here:

What Are the Different Types of Disability Insurance?


How Can I Get Short-Term Disability Insurance?

There are a few ways you can get short-term disability insurance. If you’re a W-2 employee, check with your employer. A lot of companies include short-term disability as a benefit at no cost to the worker. At the very least, you and your employer would share the premium cost.

If you can't get short-term disability through your employer or if you’re self-employed, there are other options. You could purchase an individual policy through an insurance provider. Additionally, if you do acquire short-term disability insurance through your employer, you can buy extra coverage through an individual policy. The White Coat Investor has several vetted partners that you can explore.


Can You Buy Short-Term Disability Insurance for Pregnancy?

Short-term disability insurance can cover pregnancy-related leave, although the extent of coverage depends on the particular policy. For example, a short-term disability insurance policy may provide income replacement for 6-8 weeks following childbirth, but you could not collect the policy benefits and paid family leave protection during that same time period.

Additionally, the nature of the pregnancy will factor into how long the policy will pay out benefits. A pregnancy and delivery without complications will likely pay six weeks of benefits, whereas eight weeks would be covered if a C-section was performed. Benefits might be paid before the delivery if your physician puts you on bed rest because of the pregnancy.


Can You Get Short-Term Disability Insurance After an Injury?

As with most types of insurance, short-term disability isn’t an “after the fact” type of coverage. You have to be currently enrolled in a plan to qualify for policy benefits in the event you can’t work due to injury or illness. If you have an active short-term disability insurance policy when you suffer a disability, however, get in touch with your physician so they can document your injury or illness right away.


Who Needs Short-Term Disability Insurance?

Short-term disability insurance is ideal for those who would have a tough time managing financially if their income suddenly stopped because they were unable to work. You should consider this coverage if you’re the household’s sole or primary wage earner, if you're self-employed, or if you currently don’t have enough money in savings to cover a few weeks or months without income.


Who Pays Health Insurance While on Short-Term Disability?

If you’re on short-term disability, your employer will likely keep your benefits in place. Your employer is also required to continue your healthcare benefits if your absence is 12 weeks or less, and your leave is protected under the Federal Medical Leave Act.

 Things get a little more complicated if your leave goes on longer, however. Your employer isn’t required to hold benefits or your position if your disability is permanent and keeps you off work longer than six months. In this instance, you’d likely need to explore other health insurance options.


Are Short-Term Disability Insurance Payments Taxable?

Whether your short-term disability insurance benefits are taxable depends on how your premium is paid. If your employer covers your entire premium, your benefits are taxable. On the other hand, if you pay for your short-term disability insurance premium with post-tax dollars, your benefits would not be taxable.


Best Short-Term Disability Insurance

The “best” short-term disability insurance for you will depend on your individual needs and financial situation. As you research providers, however, some general factors to consider include cost, length of benefit periods, coverage limits and elimination periods, what additional benefits are offered, and if a physical exam is required.

Be sure to check out this list of insurance providers that The White Coat Investor considers to be some of the best insurance agents in the country if you need help getting started with your search.

More information here:

Disability Insurance: Your Health Is Your Wealth


Is Short-Term Disability Insurance Worth It for Doctors? 

Short-term disability insurance can be a lifeline for many people who could not pay their bills if they got injured, couldn't work, and didn’t have much savings. This does not always apply to doctors, however. While a short-term disability may hurt a physician for a few weeks or months, they can typically recover quickly—especially if they are saving for retirement and have an emergency fund. This is why many doctors don’t typically buy short-term policies.

This doesn’t mean physicians are without any disability insurance, however. They just opt, or should opt, for a different type of disability insurance: long-term. Physicians must do so because one out of seven doctors end up having to use it. Losing the ability to use their skills and knowledge to earn a large income is one of the most expensive risks a doctor can face.

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