What Is Disability Insurance?

In terms of disability insurance, there’s no universal solution. Depending on your specific needs and circumstances, you may opt for short-term or long-term disability insurance. But how do these two differ?

Short-term disability insurance provides coverage for a brief period, typically 3-6 months, while long-term disability insurance offers benefits for much longer durations that can extend for years or up to the retirement age. It’s essential to consider long-term disability coverage when planning for your financial future.

Here are some key differences between short-term and long-term disability insurance:

Short-term disability insurance usually replaces a higher percentage of income, up to 80%, for the coverage duration.

In contrast, long-term disability benefits provide between 40-70% of your income, depending on the policy.

The waiting period, also known as the elimination period, is typically around 14 days for short-term disability and approximately 90 days for long-term disability before insurance benefits begin.

Short-Term Disability Insurance: Temporary Financial Relief

Short-term disability insurance can be compared to a financial first-aid kit. It covers individuals who are temporarily unable to work due to illness, accident, or injury, with the aim of returning to work after recovery. This type of insurance typically offers ‘own occupation’ coverage, ensuring financial support across various expenses such as mortgages, utilities, and daily living costs.

Short-term disability insurance usually covers a higher percentage of an individual’s income, up to 70%, with benefits payable for six weeks up to a maximum of two years. The key features of short-term disability insurance include:

Higher percentage of income coverage

Benefits payable for six weeks up to a maximum of two years

Tailored elimination period to match the policyholder’s financial capacity

Simply put, short-term disability insurance provides temporary financial relief when you need it most.

Long-Term Disability Insurance: Extended Income Protection

Conversely, long-term disability insurance resembles a financial fortress. Its benefit periods can vary, offering options that range from a few years, typically 5 to 10 years, and can extend up to age 65, 67, or 70 or potentially last for the lifetime of the insured. Individual long-term disability insurance policies may cover up to 90% of an individual’s income, which is often higher than the percentage covered by group long-term disability plans that usually range between 50%-70% of the insured’s income.

The COLA rider is essential for long-term disability insurance policies to keep the benefits in line with inflation and maintain the policyholder’s purchasing power throughout a claim. In essence, long-term disability insurance provides extended income protection, ensuring your financial stability in the long run.