See the Essentials About Long-Term and Short-Term Disability Insurance

Are Your Personal Finances Protected in Case of an Emergency?

Nurse using digital tablet with patient in hospital and collecting long term disability insurance.
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Long-term disability insurance (LTD) is an insurance policy that protects an employee from loss of income in the event that he or she is unable to work due to illness, injury, or accident for a long period of time. This can devastate a family financially without the safety net provided by a long-term disability insurance policy.

Long-term disability insurance does not provide insurance for work-related accidents or injuries that are covered by workers' compensation insurance. But, they do cover an employee in the event of a personal accident such as a car accident or a fall.

However, long-term disability insurance ensures that an employee will still receive a percentage of their income if they cannot work due to sickness or a disabling injury. Long-term disability insurance is an important protection for employees.

The Shortfall in Long Term Disability Coverage

"In 2018, 42% of private industry workers had access to short-term disability insurance plans and 34% to long-term plans. Twenty-six percent of state and local government workers had access to short-term coverage and 38% to long-term benefits." 

The Council for Disability Awareness has collected data from unpublished and published sources to reach these conclusions.

  • "At least 51 million working adults in the United States are without disability insurance other than the basic coverage available through Social Security
  • "Only 48 percent of American adults indicate they have enough savings to cover three months of living expenses in the event they’re not earning any income.
  • "Almost half of American adults indicate they can’t pay an unexpected $400 bill without having to take out a loan or sell something to do so.
  • "More than one in four of today’s 20-year-olds can expect to be out of work for at least a year because of a disabling condition before they reach the normal retirement age.
  • "5.6 percent of working Americans will experience a short-term disability (six months or less) due to illness, injury, or pregnancy on average every year. Almost all of these are non-occupational in origin."

While this percentage of employees covered has risen since 2008, a significant percentage of employees remain uncovered.

Take a look at why this is not positive for employers.

Why Employers Should Offer Long-Term Disability Insurance for Employees

Employees use the type of benefits supplied by a potential employer as one of the key decision factors that govern their choice of employment. As such, employers who want to become an employer of choice and win the talent war for the best employees will offer a benefits package that attracts and retains employees.

Offering long-term and short-term disability insurance are also ways in which employers can express their regard and respect for the people they employ. No thoughtful, forward-looking employer wants to see their employees devastated by the effects of a long-term serious illness or accident.

According to the U.S. Bureau of Labor Statistics (BLS), "the cost of providing both short- and long-term disability insurance access to all private-sector workers would be approximately 1.0 percent of total compensation cost ($0.30/$29.99). This would cost an employer $624 each year for a full-time (2,080 hour) worker."

How Employers Should Offer Long-Term Disability Insurance for Employees

Long-term disability insurance is usually provided and paid for by employers. In fact, 93% of plans are paid for by the employer. A variety of different plans are available for employers to offer as part of a comprehensive employee benefits package.

If a company doesn’t offer long-term disability insurance or if an employee wants additional coverage, he or she has the option of purchasing an individual long-term disability plan from an insurance agent.

Most frequently, though, long-term disability insurance is available through the employer; it is expensive to purchase as an individual employee. Consequentially, some employers, if they do not provide long-term disability insurance will develop a relationship with a long-term disability insurance company to create an employee discount for their staff who choose to purchase a long-term disability policy.

Because it is so expensive for an individual to purchase, long-term disability insurance is often available through an employee's professional associations at a discounted rate.

Long-term disability insurance, provided by an employer, may be inadequate to meet a disabled employee's needs. This is the second reason employees might want to consider purchasing supplemental long-term disability insurance.

Additionally, payments to the employee from their employer's long-term disability insurance are taxable income whereas payments from an employee purchased plan are usually not.

Long-Term Disability Insurance Plan Coverage

Long-term disability insurance (LTD) begins to assist the employee when short-term disability insurance (STD) benefits end. Once the employee's short-term disability insurance benefits expire (generally after three to six months), 

Long-term disability payments to the employee, in some policies, have a defined period of time, for example, two-ten years. Others pay an employee until he or she is 65 years old; this is the preferred long-term disability policy.

Each long-term disability insurance policy has different conditions for payout, diseases, or pre-existing conditions that may be excluded, and various other conditions that make the policy more or less useful to an employee.

Some policies, for example, will pay disability benefits if the employee is unable to work in his or her current profession; others expect that the employee will take any job that the employee is capable of doing—that's a big difference and consequential to the employee.

Long-term disability insurance is an important component of a comprehensive employee benefits package. In fact, according to experts, long-term disability insurance coverage is as important to an employee as life insurance.

Employees are responsible for examining their employer's policy to ensure that it meets their needs. If not, employees are responsible for purchasing their own expanded coverage which may be available at a somewhat reduced rate through their employer's insurance carrier.

You know your health history, your ancestry, and your family's history of diseases. Keep all of this in mind when you look at the amount of long-term disability insurance that you need to carry. Further, if you stay in touch by visiting your doctor regularly, you can often determine what's going on with any health issues before they require you to use long-term disability funds.

Short-Term Disability Insurance Overview

Short-term disability insurance is an insurance policy that protects an employee from loss of income in the case that he or she is temporarily unable to work due to illness, injury, or accident.

Short-term disability insurance does not protect against work-related accidents or injuries, as noted above, because these would be covered by workers' compensation insurance.

However, short-term disability insurance ensures that an employee will still receive a percentage of income if they cannot work due to sickness or a disabling injury. This is an important protection for employees.

Just like long-term disability insurance, short-term disability insurance is usually provided by employers for the same reasons—to demonstrate the care and respect of the employer and to attract and retain talent. A variety of different plans are available for employers to offer their employees. Employees can provide group insurance packages as part of a benefits package.

If a company doesn’t offer short-term disability insurance or if an employee wants additional coverage, he or she has the option of purchasing an individual plan from an insurance agent. Most commonly, though, the insurance is available through the employer.

Eligibility to Collect Short-Term Disability Insurance

Most short-term disability insurance plans include certain specifications regarding the employee's eligibility to receive benefits. For example, some plans indicate a minimum service requirement or the minimum length of time that a worker must have been employed for, and may require that the employee works full-time or has worked consecutively for a certain period of time.

In addition to these requirements, some employers specify that an employee must use all of their sick days before becoming eligible for short-term disability benefits. Employers may also require a doctor’s note to verify an employee’s affliction, commonly including illnesses such as arthritis or back pain, cancer, diabetes, or other non-work-related injuries.

Short-Term Disability Insurance Plan Coverage

Short-term disability insurance benefits vary by plan. Typically, a package offers about 64.4% (usual range: 50-70%) of an employee’s pre-disability salary, as evident in the Bureau of Labor Statistics–Fixed Percent of Earning analysis.

As of 2019, 40% of workers had access to short term disability benefits. Access varied by job title, industry, and more.

Of employers who offered short term disability insurance, 85% pay the full amount of the premium while 15% require an employee contribution.

Short-term disability insurance plans may provide benefits for as few as ten weeks, but most commonly provide benefits for 26 weeks, according to the Bureau of Labor Statistics–Duration of Benefits. Most employers had a fixed duration of STD payments available. 

However, short-term disability insurance plans vary by company, and the amount of the benefits received, may also vary based on an employee’s position or the amount of time he or she has worked for the employer.

Following the expiration of insurance benefits, many employers offer their employees access to the benefits available from a long-term disability insurance provider.

The Bottom Line

Short-term and long-term disability insurances are appreciated benefits for employees and their family members. Short-term and long-term disability insurances provide a welcome financial cushion, a safety net, in the event of an employee's disability.

Please note that the information provided, while authoritative, is not guaranteed for accuracy and legality. The site is read by a world-wide audience and ​employment laws and regulations vary from state to state and country to country. Please seek legal assistance, or assistance from State, Federal, or International governmental resources, to make certain your legal interpretation and decisions are correct for your location. This information is for guidance, ideas, and assistance.

Article Sources

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  2. Council for Disability Awareness. "Chances of Disability: Me, Disabled?" Accessed August 8, 2020.

  3. U. S. Bureau of Labor Statistics, U.S. Department of Labor, The Economics Daily. "Employee access to disability insurance plans." Accessed August 9, 2020.

  4. U.S. Bureau of Labor Statistics, Beyond the Numbers. "Disability insurance plans: trends in employee access and employer costs." Accessed August 8, 2020.

  5. U.S. Bureau of Labor Statistics, National Compensation Survey. "Table 16. Insurance benefits: Access, participation, and take-up rates,1 civilian workers, 2 March 2019." Page 103. Accessed August 11, 2020.

  6. Insurance Information Institute. "Will my employer provide disability coverage?" Accessed August 10, 2020.

  7. Internal Revenue Service. "FAQ: Is the long-term disability I am receiving considered taxable?" Accessed August 9, 2020.

  8. NiKolaus and Hohenadel, LLP. "Long Term Disability Insurance Plan." Accessed August 10, 2020.

  9. Society for Human Resource Management. "Managing Disability Benefits." Accessed August 11, 2020.

  10. U.S. Bureau of Labor Statistics. "Employee Benefits Survey: Short-term disability plans: fixed percent of earnings Data Table." Accessed August 11, 2020.

  11. U.S. Bureau of Labor Statistics, National Compensation Survey. "Table 16. Insurance benefits: Access, participation, and take-up rates,1 civilian workers, 2 March 2019." Page 59. Accessed August 11, 2020.

  12. U.S. Bureau of Labor Statistics, National Compensation Survey. "Table 16. Insurance benefits: Access, participation, and take-up rates,1 civilian workers, 2 March 2019." Page 83. Accessed August 11, 2020.

  13. U.S. Bureau of Labor Statistics, National Compensation Survey. "Table 16. Insurance benefits: Access, participation, and take-up rates,1 civilian workers, 2 March 2019." Page 91. Accessed August 11, 2020.