Short-Term vs. Long-Term Disability Insurance

Short-term and long-term disability insurance both provide a financial safety net should you become sick or injured and unable to work, but they offer different types of coverage.

Here’s what separates short-term disability insurance from long-term disability insurance and why you might actually need both.

How does disability insurance work?

Like most forms of insurance, disability insurance offers you financial protection in exchange for a monthly fee called a premium. Unlike other forms of insurance, though, you aren’t required to meet a deductible, or minimum spending threshold, to receive a payout. As long as you are determined to be medically unable to work, you can receive a portion of your income through disability insurance. Usually, that’s around 40 to 70 percent of your salary.

While that may seem like a big drop from your current income, if you purchase disability insurance with after-tax dollars (meaning dollars you didn’t exempt from taxes through your employer’s payroll), the payments are distributed tax-free. So they could end up being pretty comparable to your take-home pay.

Disability insurance purchased through an employer pre-tax or provided as a workplace benefit, however, may be subject to income taxes, meaning your coverage amount dollars won’t go as far as they would in a private plan.

What’s the difference between short-term and long-term disability insurance?

The primary distinction between short- and long-term disability insurance is the coverage period. Short-term policies generally cover just the first few months you’re unable to work. Long-term policies, on the other hand, can last for years—decades even—after you’re unable to work and may see you through being able to claim Social Security.

With that distinction alone, you might think that just signing up for long-term insurance will have you covered. But here’s the catch: long-term disability insurance usually doesn’t kick in until 60 or 90 days after you’ve filled out the necessary paperwork—or even longer, depending on the time period you choose when you select the policy. Insurers have designed short- and long-term policies to complement, not compete with, each other.

How much does disability insurance cost?

Short- and long-term disability insurance policies generally cost about the same. For 1 to 3 percent of your income, you can lock in a portion of your salary after you are confirmed to have a disability. Remember, though, that policies purchased through your employer may charge smaller amounts—or may even be provided as a workplace benefit free of charge.

The fact that most short-term and long-term policies actually have similar monthly premiums of 1 to 3 percent, despite their drastically different coverage lengths, can make short-term disability insurance comparatively very expensive. You’re paying the same premium for potentially years less coverage, after all.

Those considering short-term disability insurance may explore “self-insuring” instead by saving enough money in a bank account to cover three to six months of expenses, so that money can last them until long-term disability kicks in.

Do I need both short-term and long-term disability insurance?

If you’re able to build up an emergency fund of three to six months of living expenses, you may be able to forgo short-term disability insurance entirely. Because most people won’t be able to set aside years or decades of expenses, though, long-term disability insurance can be an affordable way to help ensure you remain financially stable, even if you’re no longer able to work.

What does short-term disability insurance cover?

Plan and policy details vary, but generally speaking, short-term disability insurance covers the first few months you are unable to work because of an illness or injury. That could be anything from a broken leg to a planned surgery or medical treatment with a longer recovery time. Notably, most short-term disability insurance policies will provide compensation for at least six to eight weeks after childbirth, depending on the type of delivery and whether there were any complications. 

What does long-term disability insurance cover?

Similar to short-term disability insurance, long-term disability coverage varies based on your specific plan or policy. That said, long-term disability generally covers chronic or long-term disabilities, which average 31.6 months, according to the Council for Disability Awareness. The vast majority (95 percent) of long-term disability claims are not related to workplace injury and may include medical conditions, like long-term pregnancy complications or musculoskeletal system and connective tissue disorders.

Should I buy short- and long-term disability insurance through my job?

If your employer provides short-term disability insurance to you at low or no cost, you may want to consider signing up, even if you’ve got adequate emergency savings built up. Thanks to group rate discounts, you may be able to lock in a portion of your income for considerably less than you could on your own, making a short-term disability policy appealing even to those with emergency funds.

Purchasing long-term disability insurance through your company becomes more complicated, though. While your employer may offer a favorable rate through a negotiated group policy, coverage may be less comprehensive than you could get on your own and, after taxes, may offer you less than you’re able to comfortably live on. Long-term disability insurance plans purchased through work also aren’t portable, meaning you’ll lose your coverage if you leave your job. Private long-term disability policies, on the other hand, remain active no matter what job you’re in as long as you keep paying the premiums.

That said, workplace long-term disability plans can offer a great starting place for long-term disability coverage, and you can supplement that coverage with a private policy.