Short-term disability insurance can be invaluable when an employee experiences an accident, hospital stay or other health crisis that prevents them from returning to work. Approximately 3 in 4 employers offer short-term disability (STD) benefits to their employees, according to a survey conducted by the International Foundation of Employee Benefit Plans (IFEBP). Most short-term disability insurance benefits equal 40 to 60 percent of an employee’s usual salary.
Unlike long-term disability insurance which can last five to 10 years or until the age of 65 and beyond, short-term disability generally lasts up to several months. Before deciding to offer STD to employees, business owners should consider how it works and exactly how long it lasts.
What Is Short-Term Disability Insurance?
Short-term disability insurance is a type of insurance benefit that provides employees with a regular payment due to loss of income as a result of a non-work-related injury or illness. If an employee is temporarily unable to return to work, short-term disability benefits help ensure that they can continue paying their bills and caring for their family. Short-term disability insurance differs from workers’ compensation as disability insurance can cover accidents that occur both on and off the job, while workers’ compensation only covers work-related injuries and illnesses. In some cases, an employee may be eligible for both STD benefits and workers’ compensation. Short-term disability insurance is only mandated in the states of New York, New Jersey, Hawaii, California, Rhode Island, and Puerto Rico. In some locations, it’s administered and paid through payroll.
However, many employers choose to offer STD insurance for the benefit of their employees and remain competitive. Short-term disability can be structured in two ways: self-funded, in which the employer funds the benefit, or through insurance, in which the employer works with an insurance company to provide the benefit. Most insurance policies cover any injury or illness that may render a person unable to perform their jobs, such as major surgery, childbirth, or a condition that results in a long recovery period.
How Long Does Short-Term Disability Last?
Short-term disability insurance benefits generally last up to either three or six months, according to the National Association of Insurance Commissioners. STD policies also have a “cap,” meaning that an employee can only receive a specified maximum benefit amount per month.
The amount of time off primarily depends on the specific health problem and medical guidelines regarding how long the recovery period should take based on the nature and severity of the condition. As the name suggests, short-term disability insurance is designed to be used temporarily, usually less than six months. Long-term disability insurance would traditionally kick in after short-term disability benefits are exhausted, which why it’s recommended for employers to provide both benefits and do so through the same insurer.
How Does It Work?
Short-term disability coverage can begin anywhere from one to 14 days following an injury or illness that renders an employee unable to return to work. Some employers have policies in place that require an employee to use any accrued sick days before STD benefits kick in unless it is an illness that is expected to keep the employee out of work for an extended period of time. A short-term disability policy can either be an employer- or employee-paid benefit. However, employers commonly offer short-term disability coverage as a company-paid benefit. An employer can also require an employee to obtain documentation from a doctor to prove an injury or illness based on terms set out in an employee policy. Employees are required to report any changes in their health status immediately. Disability insurance benefits typically replace 60 percent of an employee’s income.
The taxation of those benefits will depend on how the policy was written and established. However, this number can vary considerably based on monthly living expenses, policy terms, and other factors. Once a claim has been filed, the insurance company will review all medical information to determine if the employee meets the definition of disability as defined in the policy. To continue receiving disability benefits, the employee must continue to meet the definition of disability and may be required to have a certain percentage of their earnings lost. The insurance company may require updated medical information to provide continued benefits. Short-term disability insurance benefit payments are often made on a weekly basis and are sent directly to the employee.
How Is It Different From Long-Term Disability Insurance
Short-term and long-term disability insurance policies are designed to provide employees with financial assistance when they experience an injury or illness that forces them to stop working. However, there are some distinct differences between the two types of insurance. The main difference between the two is that STD policies pay a portion of an employee’s income for a shorter period of time and usually after sick leave runs out. LTD policies generally begin after both sick leave and STD run out and can last for several years or until a specific age, such as 65 or Social Security Normal Retirement Age (SSNRA).
There are additional definitions of this provided by various insurers. Along with different benefit periods, the elimination period between the two policies can also differ. The elimination period for short-term disability is usually less than 14 days while the elimination period for long-term disability can range from 30 to 720 days with 90 days being the average. Generally speaking, the coverage amount can for both STD and LTD coverage is usually set at 60% of earnings, up to a defined limit per week (STD) or per month (LTD). Higher percentages of coverage can be obtained and the elimination of taxes can be written into the policy (gross-up). Please consult with your benefits advisor for more details, or contact BBG.
Reach Out To Knowledgable Business Insurance Brokers
When an employee is suddenly unable to earn a paycheck due to an unexpected accident or illness, they often rely on employer-sponsored benefits like short-term disability insurance to provide compensation until they are able to return to work. The terms of a short-term disability insurance policy can vary significantly with some policies providing employees with longer benefit periods and more money each week.
It is important to compare different options to determine which is best for the business. For more information about short-term disability insurance or to acquire a policy, speak with the professional business insurance brokers at Business Benefits Group today.