Inability to work due to an injury or illness can severely affect a person’s financial situation.

This is particularly concerning since the Social Security system might not offer the necessary assistance for disabilities, potentially jeopardizing the financial well-being of those unable to work due to physical or mental issues.

If you reside in the U.S. or are thinking of relocating there, grasping how disability insurance functions is crucial for safeguarding your financial health.

What does disability insurance entail?

In the U.S., disability insurance is a policy that offers financial assistance to employees who cannot perform their job duties due to illness or injury.

This type of insurance can provide a substantial part of an individual’s income while they’re out of work, aiding in maintaining their quality of life during tough times.

There are primarily two types of disability insurance in the U.S., each with unique roles and features, and it’s important to understand their differences.

Short-Term Disability Insurance (STD)

Short-term disability insurance aims to provide financial support for a limited duration, usually ranging from 3 to 6 months, for individuals temporarily unable to work due to health issues.

This insurance is frequently provided by employers but can also be bought independently.

The payout from STD is generally a percentage of your regular salary, typically ranging from 60% to 80%.

It’s vital to know that short-term disability insurance usually has a waiting period, which means there’s a delay before benefits commence after the disability starts.

Long-Term Disability Insurance (LTD)

Long-term disability insurance offers benefits for individuals unable to work for extended periods, sometimes lasting for years or until retirement.

This type of insurance is crucial for those dealing with serious, ongoing health issues or severe injuries that hinder their return to work for long stretches.

LTD often comes as part of a benefits package from employers, but individuals can buy it separately as well.
Typically, this benefit amounts to a percentage of your prior salary (around 50% to 80%), and it can extend for several years, usually until you turn 65, depending on the specific policy.

Key Differences Between STD and LTD

The primary distinction between short-term and long-term disability insurance lies in the duration of coverage, which is clear from their names.

Short-term disability (STD) offers brief coverage, while long-term disability (LTD) caters to more severe, ongoing issues.

Benefits from STD typically kick in faster, while LTD might impose a longer waiting period and a more thorough evaluation of the medical condition.

Cost is another significant factor. Generally, short-term disability insurance is less expensive than long-term disability insurance, as LTD has a higher price due to its extended coverage and larger benefits.

Disability Insurance from Employers

Many employers include some type of disability insurance in their benefits offerings.

The disability insurance provided by employers may cover both short-term and long-term needs, depending on the organization’s policy.

If you lack access to employer-sponsored insurance, getting an individual policy can be a great alternative.

When obtaining disability insurance via an employer, employees often contribute to the premium, while the employer covers the remainder.

Disability Insurance for Individuals

The coverage from employers might not fully meet your needs, especially if it is limited or if you find yourself without insurance because of a job that doesn’t offer this benefit.

In such situations, acquiring an individual disability insurance policy can be a wise decision.

This insurance can be customized to fit your specific needs and can work in conjunction with any employer-provided disability insurance, if you have it.

The cost of individual disability insurance varies based on the selected coverage level, the age of the insured, and the specific policy type.

Although they typically cost more than employer-sponsored policies, they often offer stronger long-term security.