Do I Need Short-Term or Long-Term Disability Insurance?


If you decide that you need disability insurance, the next important question is Do I need short-term or long-term disability insurance? That’s an important question – you want to have disability insurance, but you want to make sure you have just the right amount and no more.

Why Short-term Disability?

Short-term disability insurance is so named because the benefit term is limited to few years, generally two years or five years. A policy will pay out benefits to you for the specified length of time, as long as you qualify by meeting the definition of “disability” contained within the policy.

Short-term disability is valuable to have because most disabilities are temporary in nature. Typically, you’ll be back to work within a few months of sustaining an injury or illness that takes you away from work. The short-term policy will cover you during the most critical phase of your disability, which will enable you to improve your condition, and adjust as necessary.

The fact that the coverage is short-term isn’t as much of a concern as it seems at first glance. Should your disability become permanent, you can apply for long-term disability benefits with Social Security Disability Insurance. We’ll get deeper into that option in a few minutes.

Why Long-term Disability?

Sometimes referred to as permanent disability, long-term disability can provide you with benefits from the time you become disabled, up to age 65 or 67, depending upon what your full retirement age (FRA) is. At that point, you can apply for Social Security retirement income. This will ensure that you will have an income for the rest of your life, even if you do become disabled.

This is excellent coverage to have, if your employer offers it or, if you can afford to purchase a private long-term disability policy.

However, there may be certain circumstances under which you would not need permanent disability coverage.

Outside Factors that Can Determine Which Way You Go

Whether or not you need long-term disability or short-term disability will depend heavily upon your circumstances. For example, if you’re self-employed, and can run your business in some capacity even if you have physical limitations, you may only need short-term coverage.

The size of your asset base is also an important consideration. If you have sufficient savings and investments to provide for you for the rest of your life, or at least until you reach age of retirement, a short-term disability policy will get the job done.

Non-employment related sources of income is yet another consideration. If you have one or more passive sources of income, such as a cash flow from rental property or a silent partner business arrangement, you may have sufficient income to survive even if your primary income is disrupted. A short-term disability policy may be all that’s needed to help you in the early days of your disability, when you need to get adjusted to living without your earned income.

It’s also likely that if you’re single, and have no dependents, a short-term disability policy will work for you. However if you have a family to provide for, you probably need long-term disability instead.

Your health is also a factor, and so are genetics. If you’re in excellent health, and your family’s health history is clean, you will likely have a very low incidence of disability resulting from illness. Since disabilities resulting from accidents are often temporary in nature, your needs may be met comfortably with a short-term disability policy.

Social Security Disability to the Rescue (for Short-term Disability)

On the surface, it may seem as if long-term disability is the way to go – after all, it will provide you with an income right up until retirement. However, if you are permanently disabled, you can also get help from the Social Security Administration’s Social Security Disability Insurance program, or SSDI.

SSDI will provide you with an income for as long as you are disabled, right up until the time you qualify for regular Social Security retirement benefits. You can purchase a short-term disability policy, and if your disability looks as if it’s going to run well beyond term of the policy, or become permanent, you can apply for benefits under SSDI.

Getting SSDI benefits is a notoriously slow and difficult process. Short-term disability can provide you with the initial income that you need while you’re attempting to obtain benefits under SSDI.

Even though SSDI is available, you might still go with a long-term disability policy if you do not yet qualify for coverage. In order to be eligible to receive SSDI, you must have paid into the Social Security system for at least 40 quarters (10 years). If you are early in your career, or haven’t paid into the system for that long for whatever reason, you’ll be better off with a long-term disability policy – at least until you qualify for SSDI.

The Most Important Thing is Getting a Disability Policy of Some Sort

Even if you are unsure as to whether or not you need short-term or long-term disability insurance, the more important issue is getting coverage of one kind or another. Like any other type of insurance policy, the time to buy it is before disaster strikes. Even if you have a short-term disability policy when you are hit with a permanent disability situation, it will still buy you the time you need to apply for SSDI, to get permanent benefits.

If you work to earn a living – as most people do – you need to get some kind disability insurance coverage as soon as possible. If it is offered to you through your employer, you should take a plan. And if it is not, you should look to get a private disability insurance policy of your own.

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