The types of disability benefits offered by employers typically fall into one of two categories: long term (LTD) and short term (STD). In this FAQ, the difference between the two categories, as well as some other key details are covered so that you know where to begin your search if disability coverage outside of what your employer offers is right for you.
But first, let’s define what disability insurance is overall, and what it is supposed to do. Disability insurance is voluntary insurance that protects your paycheck in the event of an accident, pregnancy, or certain type of illness. Disability insurance is not designed to cover a week of work missed for the flu or some other short-term condition. The “elimination period” is the time one must wait following a disability before one can begin to receive benefits. Typically, an elimination period is 30, 60, 90, or 180 days. Here are a few frequently asked questions about disability insurance and how the two main types work.
What is short-term disability?
Answer: Short-term disability replaces a portion of your salary due to qualifying injury or illness. Usually, STD benefits are used for 3-, 6-, or 12-month periods. In order to qualify for STD benefits, you must be unable to perform your normal job duties. The elimination period for most STD plans is two weeks, but they can range from one week to one month. STD, although carrying a shorter elimination period, can be much more costly due to the potential earlier claim exposure to the company.
What is long-term disability?
A: As the name implies, the difference is the length of time that a person can receive benefits. With most LTD benefit plans, one can receive benefits to age 65. Some plans will cover for life. Most LTD plans offer a 90-day elimination period; however, it is often possible to select a longer elimination period in order to reduce the plan’s yearly deductible. Self-funded plans can offer a shorter 30-day elimination period with the potential for lifetime coverage.
Q: How do STD and LTD plans differ with regard to salary protection?
A: Some LTD plans are much less expensive and have a 30-day elimination period with lifetime coverage. This makes far more sense in the overall salary protection arena and is, really, the best of both worlds. Also, some LTD plans offer the inclusion of death benefits in the monthly cost of the plan, which is rarely offered in an STD plan.
Q: Which type of disability plan offers the most compensation?
A: Although there is no cookie cutter answer, most STD plans will offer 40-70% of a person’s lost wages, and LTD plans typically offer compensation that falls between 60% and 85% of lost wages.
Q: Do LTD benefits offered by my employer cover my entire salary?
A: The simple answer is, most (but not all) employer-based LTD benefits cover salary only; they do not cover overtime or incentive-based compensation.
For example, let’s say you earn a flat, monthly salary of $8,000 as a firefighter or law enforcement officer. Your disability plan will pay you anywhere from $4,800 (60%) to $6,800 (85%) monthly following the elimination period.
Where do I get disability coverage?
A: Many employers offer voluntary, employer-sponsored disability coverage options. However, it is possible to elect for either private benefit plans from a third party and supplemental coverage. California Law Enforcement Association (CLEA) and California Association of Professional Firefighters (CAPF) are two of the largest plans within California offering alternatives to an insurance company’s fully or partially insured plans.
Don’t forget: Benefits from employee-paid plans are fully taxable. If you think supplemental or private disability coverage may be right for you, contact CLEA or CAPF at 800-832-7333. Benefits that you pay for yourself are both federal and California state tax free.
