Short-Term vs. Long-Term Disability

There are two main types of disability insurance.

Short-Term Disability

Short-term disability helps when you cannot work for a shorter period. Maybe you have surgery and miss two months of work. Maybe an injury keeps you home for several weeks.

Some employers offer short-term disability through their benefits package.

You may also be able to cover some of this risk yourself. A common rule of thumb is to keep three to six months of expenses in an emergency fund, though the right amount varies from person to person. Savings and short-term disability coverage can work together.

The larger risk is when a disability lasts years instead of months.

Long-Term Disability

Long-term disability helps replace income when you cannot work for a longer period.

These policies usually have a waiting period before benefits begin. You may have to be disabled for 90 days, 180 days, or another period listed in the policy. After that, benefits may continue for a set number of years or up to a certain age.

This is where the pieces can work together. You may use your emergency fund or short-term disability coverage during the first few months. Long-term disability can then help if you still cannot work.

Your emergency fund can handle a temporary problem. It was not built to replace five or ten years of income.

A Simple Example

This is a hypothetical example for illustration only. Sarah is a fictional person, not an OSA client.

Assume Sarah is 42 and earns $120,000 per year. She has four months of expenses saved in cash. Her employer also offers short-term and long-term disability coverage.

Instead of stopping at, “I have disability insurance through work,” Sarah looks at the details. She asks:

• How much would I receive each month?
• How long would I have to wait before benefits start?
• Would the money be taxable?
• How long could the benefits last?
• What does the policy consider a disability?

She may find that her emergency fund can cover the first few months and her employer plan can take over after that. Or she may find a large gap between the income her family depends on and what her employer plan would pay.

That gap is what matters.

Coverage Through Work vs. Buying Your Own Policy

A good place to start is with the coverage you already have through your employer.

Group Coverage Through Work

Employer disability insurance can be a valuable benefit. It may also have limits.

Your plan might cap the amount it pays each month. It may only pay benefits for a certain amount of time. The coverage may also end when you leave that employer.

The definition of disability matters too.

Rather than asking only whether you have coverage, consider asking what the coverage actually does.

Private Disability Insurance

You can also buy your own disability policy outside of work.

Because you own the policy, changing jobs does not automatically mean losing the coverage, as long as the policy stays in force and premiums are paid. A private policy may also give you more choices over:

• How much income is covered
• How long you wait before benefits start
• How long benefits can last
• How the policy defines a disability

Private policies also have tradeoffs. They generally require medical underwriting, can be expensive, and may exclude pre-existing conditions or certain causes of disability. Renewability and other terms vary by policy. The cost depends on your age, health, occupation, amount of coverage, and the policy you choose.

You may not need a private policy. The point is to understand what you already have before deciding whether there is a gap.

Common Questions About Disability Insurance

What does “own occupation” mean?

This refers to how the policy decides whether you are disabled.

Imagine a surgeon who can no longer perform surgery because of an injury but can still teach. An own-occupation policy may look at whether that person can still perform the main duties of being a surgeon. Other policies may look at whether the person can work in another type of job. Some policies change their definition after a set period, for example from “own occupation” to “any occupation.”

The wording matters, especially if your income depends on a specialized skill.

Are disability benefits taxable?

It depends on how the premium was paid. Generally, if you paid the full premium yourself with after-tax money, the benefit is not included in your federal taxable income. If your employer paid the premium, or you paid it with pre-tax dollars, the benefit is generally taxable. State rules may differ.

Check your specific plan and speak with a tax professional before estimating how much income you would actually receive.

What if I don’t have disability insurance? Doesn’t Social Security help?

Social Security Disability Insurance (SSDI) can provide income if you meet the Social Security Administration’s rules for disability.

Those rules are strict. Your condition must prevent you from doing substantial work, and it must have lasted, or be expected to last, at least 12 months, or be expected to result in death. Benefits generally do not begin until after a five-month waiting period, and the application process can take time.

SSDI can be an important safety net, but it may replace only a portion of the income you earned before becoming disabled. For current rules, see the Social Security Administration’s website (ssa.gov).

How much does disability insurance cost?

There is no single price. Your age, health, job, monthly benefit, waiting period, and length of coverage all affect the cost.

Before comparing prices, first figure out what you already have and how much income you actually need to protect.