Short-term disability benefits are often included as part of an employee benefits package. Short-term disability plans replace income for the early period of a disability. In general, the plans provide benefits that range from as little as two weeks up to two years. Plans often have a waiting period, sometimes called an elimination period. The waiting period is the period of time, after you become disabled until your benefits begin. Work related disabilities are not covered.
Short-term disability waiting periods are usually 0 to 14 days. For example, if you have short-term disability coverage with a 14-day waiting period, and a disability keeps you from working for three weeks, you will receive benefits for the third week of your disability, but not for weeks one and two. Those two weeks are the waiting period, during which benefits are not paid. The benefit is typically 50, 60, or 67% of the employee's weekly salary. The benefit period is usually 13, 26, or 52 weeks.
Long-Term Disability Insurance
As with short-term disability plans, your employer may provide long-term disability coverage. Benefits help replace income for an extended period, often five years or until the disabled person turns 65. Plans with longer benefit periods are more expensive. These plans can have different waiting periods, typically 60, 90, 180, or 365 days.
Work related disabilities are not covered. However, individual disability policies will usually pay for both on and off the job disabilities which would include any work related injuries.
How much disability income insurance do I need?
It’s generally recommended that disability coverage be chosen to replace 60 to 70 percent of your total taxable earnings. If you purchase disability insurance with after-tax dollars, your benefits will usually be income tax free. If you have group disability insurance provided by your employer, however, benefits will generally be taxable.
Small business owners have special concerns and should consider obtaining professional advice about policy options that protect a business if the owner becomes disabled (e.g., overhead expense policies).
To estimate the benefit amount you would need if you became disabled, ask yourself how much monthly income would cover your living expenses.Would these expenses go up or down if you became disabled? These expenses must be carefully considered. Work-related expenses may go down. Medical expenses may increase. Education expenses may increase as you retrain. Some insurance policies may have premium waivers. By considering all these factors, you should be able to come up with an appropriate amount.