What Is Disability Insurance? Short-Term vs. Long-Term Explained

Your ability to earn an income is one of your most valuable assets. If an illness or injury kept you from working for months or even years, could you still pay your bills? Disability insurance is designed to answer that question by replacing a portion of your paycheck when you are medically unable to work. Whether it is a back injury, a serious illness, or a complicated surgery with a long recovery, disability insurance provides a financial safety net that keeps your household running.

Many people assume they are covered through their employer or through Social Security. In reality, employer plans may not cover enough, and Social Security Disability Insurance (SSDI) is limited to total disability with an average benefit of about $1,630 per month. Understanding how disability insurance works, the difference between short-term and long-term coverage, and how to evaluate your options can help you protect the income your family depends on.

How Disability Insurance Works

Disability insurance is a type of income protection. When you become disabled and cannot work, the policy pays you a monthly benefit that replaces a percentage of your pre-disability earnings. The benefit amount, how long it lasts, and when payments begin all depend on the type of policy you have.

Unlike health insurance, which pays for medical treatment, disability insurance replaces the income you lose because you cannot work. It does not pay your doctor or hospital. Instead, it sends money to you each month so you can cover rent, groceries, utilities, and other living expenses while you recover.

There are two main types of disability insurance: short-term disability and long-term disability. Most people need to understand both, because they serve different purposes and cover different timeframes.

Short-Term Disability Insurance (STD)

Short-term disability insurance covers you for a limited period, typically 13 to 26 weeks. It is designed for temporary disabilities like a complicated pregnancy, a broken bone that requires surgery, a recovery from a heart procedure, or a short-term mental health crisis that keeps you from working.

Key features of short-term disability insurance include:

• Benefit amount: Replaces 40 to 70 percent of your pre-disability income, depending on the policy.
• Benefit period: Usually 13 to 26 weeks (roughly 3 to 6 months).
• Elimination period: Typically 0 to 14 days before benefits begin.
• Common source: Most commonly offered through employers as a group benefit.

Five states plus the District of Columbia mandate some form of short-term disability coverage: California, Hawaii, New Jersey, New York, and Rhode Island. If you work in one of these states, you may already have basic STD coverage through a state program funded by payroll deductions.

Long-Term Disability Insurance (LTD)

Long-term disability insurance is designed for more serious and lasting conditions. It picks up where short-term disability leaves off and can provide income replacement for years or even until you reach age 65. LTD is the type of disability coverage most financial advisors recommend as essential.

Key features of long-term disability insurance include:

• Benefit amount: Typically replaces about 60 percent of your gross salary.
• Benefit period: Can last 2 years, 5 years, 10 years, or until age 65, depending on the policy.
• Elimination period: Usually 90 to 180 days. This is why many people pair STD and LTD policies so there is no gap in coverage.
• Availability: Available through employers as a group benefit or purchased individually from insurance companies.

Long-term disability is especially important for conditions that can keep you out of work for extended periods, such as cancer treatment, a serious back or spinal injury, a stroke requiring rehabilitation, or chronic conditions like multiple sclerosis.

Group vs. Individual Disability Insurance

Disability insurance is available through two main channels: group policies offered through your employer and individual policies you purchase on your own. Each has advantages and limitations.

Group disability insurance is typically less expensive because the employer negotiates rates for the entire workforce. It often requires little or no medical underwriting, making it easier to qualify. However, group policies usually have limitations. Benefits are often capped at 60 percent of salary, may have a maximum monthly benefit, and may use a more restrictive definition of disability. Most importantly, group coverage ends when you leave that employer.

Individual disability insurance is purchased directly from an insurance company. It is portable, meaning it stays with you regardless of your job. Individual policies tend to offer more customizable features, including own-occupation definitions, longer benefit periods, and optional riders. The trade-off is that individual policies require medical underwriting and cost more than group coverage.

Many financial professionals recommend having both: take advantage of your employer's group coverage and supplement it with an individual policy to fill any gaps.

Understanding Elimination Periods

The elimination period is one of the most important features of any disability policy. Think of it as a waiting period or a deductible measured in time instead of dollars. You must be disabled for the full elimination period before your benefits begin.

For short-term disability, the elimination period is usually 0 to 14 days. Some policies start paying immediately for accidents and have a 7-day wait for illnesses. For long-term disability, the elimination period is typically 90 to 180 days. The longer you are willing to wait, the lower your premium will be.

When choosing an elimination period, consider how long you could sustain your household from savings, emergency funds, or other income sources. If you have three months of expenses saved, a 90-day elimination period is a reasonable choice for an LTD policy and will keep your premiums lower than a 30-day wait.

Own-Occupation vs. Any-Occupation Definitions

How a policy defines "disability" determines whether you qualify for benefits. This is one of the most critical details in any disability insurance contract.

Own-occupation means the policy considers you disabled if you cannot perform the specific duties of your own job. For example, if a surgeon injures her hand and cannot operate but could teach at a medical school, an own-occupation policy would still pay benefits. This definition is broader and more protective.

Any-occupation means the policy only pays if you cannot perform the duties of any job you are reasonably qualified for based on your education, training, and experience. Using the same example, the surgeon who could teach might not qualify for benefits under this definition.

Many group LTD policies use a hybrid approach. They apply own-occupation for the first 24 months and then switch to any-occupation for the remainder of the benefit period. Individual policies are more likely to offer true own-occupation coverage for the full benefit period, but at a higher premium.

Benefit Periods and How Long Coverage Lasts

The benefit period is how long the policy will continue paying you after you become disabled and complete the elimination period. Choosing the right benefit period is important because it determines how long your financial safety net lasts.

Short-term disability benefit periods typically last 13 to 26 weeks. Long-term disability benefit periods vary more widely. Common options include 2 years, 5 years, 10 years, or to age 65. A policy that pays to age 65 is the most comprehensive and is what most financial advisors recommend if you are decades away from retirement.

A longer benefit period costs more in premiums. However, the risk of a disability lasting several years is real. If you become disabled at age 40 and your policy only covers 5 years, you would stop receiving benefits at age 45, potentially leaving decades of lost income unprotected.

Who Needs Disability Insurance?

The short answer is: almost anyone who relies on a paycheck. According to the Social Security Administration, more than 1 in 4 of today's 20-year-olds will become disabled before they reach age 67. Disability is more common than most people realize, and it does not only result from dramatic accidents. The leading causes of long-term disability claims are musculoskeletal disorders, cancer, mental health conditions, and cardiovascular disease.

Disability insurance is especially important if you are the primary earner in your household, if you are self-employed and have no employer benefits, if you are a single-income household, or if you have financial obligations like a mortgage or student loans. For a detailed breakdown of who should buy coverage and who may not need it, see our guide on whether you need disability insurance.

People who may not need disability insurance include those who are already retired and living on retirement income, or those who have enough savings and investments to sustain their lifestyle indefinitely without earned income.

FMLA Is Not Disability Insurance

A common misconception is that the Family and Medical Leave Act (FMLA) provides income protection. It does not. FMLA is a federal law that provides eligible employees at covered employers up to 12 weeks of unpaid, job-protected leave per year for qualifying medical and family reasons. It protects your job, not your income.

During FMLA leave, your employer must maintain your group health insurance coverage, but you do not receive a paycheck unless you use paid leave benefits like vacation or sick time. Disability insurance is what replaces your income during FMLA leave and beyond. If your disability lasts longer than 12 weeks, FMLA protection ends but your disability insurance can continue paying for months or years.

It is also important not to rely solely on Social Security Disability Insurance (SSDI), which only covers total disability and has an average monthly benefit of about $1,630. To understand how SSDI compares to private disability insurance, read our SSDI vs. private disability insurance comparison.

How to Choose a Disability Insurance Policy

When evaluating disability insurance, pay close attention to these factors:

• Definition of disability: Own-occupation provides stronger protection than any-occupation.
• Benefit amount: Most policies replace 60 to 70 percent of your gross income. Consider whether that is enough for your household.
• Benefit period: Aim for coverage to age 65 if you can afford it.
• Elimination period: Match it to your emergency fund. A 90-day wait is the most common for LTD.
• Renewability: Non-cancelable policies guarantee your premium will not increase. Guaranteed renewable policies cannot be canceled but premiums can rise for your entire class.
• Riders: Optional add-ons like cost-of-living adjustments (COLA), future increase options, and residual or partial disability riders can enhance your coverage.

To figure out how much coverage you actually need, see our guide on calculating your disability insurance needs.

Disability insurance is not as complicated as it may seem. The key is to understand the basic terms, compare your options, and make sure you have enough coverage to protect the income your family depends on. Whether you start with your employer's group plan or shop for an individual policy, having some level of disability protection is far better than having none at all.