ELI5: Differences Between Short and Long-Term Disability Insurance in 2025

Imagine going about your day, waking up to a peaceful morning with a nice warm cup of coffee, and playing with your kids in the backyard. Then, suddenly, you slip and feel a sharp pain in your ankle. Turns out you’ve broken it.

Your ankle feels numb and sore, and all of a sudden, you can’t work, and the panic starts.

What about my job? How will I pay my bills? What about groceries and rent? Will I lose all my savings? Will my family be okay? Can we survive this?

Life’s unpredictable.

You can go from a calm morning to a complete disaster in an instant.

While we cannot change what the universe has in store for us, we can prepare for it.

That’s where disability insurance comes in.

Disability insurance helps protect your income if you’re unable to work due to illness or injury, ensuring that even if you can’t work, you can still pay your rent, cover your utilities, and buy groceries.

Unlike workers' compensation, which only covers job-related injuries, disability insurance protects you from both work-related and non-work-related health issues. 

Whether you get injured while playing with your kids, working at a construction site, or face a serious illness, disability insurance steps in to provide support.

There are three main types of disability insurance:

• Short-Term Disability Insurance 

• Long-Term Disability Insurance

• Supplemental Disability Insurance 

This blog will focus specifically on short-term and long-term disability insurance. 

If you're interested in learning more about supplemental disability insurance, feel free to check out this link. 

Protect Your Paycheck!

Protect Your Family!

Short-Term Disability Insurance

Short-term disability insurance (STD) is designed to help fill the income gap for workers recovering from injuries or illnesses without any financial hardship.

The term "short-term" simply means it's not forever.

Unlike long-term disability insurance, short-term disability insurance assists you for a few weeks or months until you are ready to resume work.

So, how does it work? Most short-term disability policies kick in within 7 to 14 days of your inability to work. They usually provide benefits for 3 to 6 months. Some plans may extend up to a year.

The duration of benefits depends on the provider, so it’s important to review your insurance plan to understand what circumstances are covered and the extent of the coverage provided.

STD policies typically replace 50% to 70% of your regular salary, helping you:

• Pay your monthly bills

• Cover medical expenses

• Avoid depleting your savings during a tough time

Think for yourself, do you think you could be away from work for 8 to 12 weeks without any income and still meet your basic needs?

 For most people, they can’t afford it.

Relying solely on your sick leave and vacation time may not be sufficient, especially when faced with a serious condition. With short-term disability insurance, you can take the time you need to heal without jeopardizing your financial stability until you fully recover.

Whether it’s an unexpected surgery or a tough pregnancy, short-term disability insurance gives you the freedom to recover properly, without sacrificing your income or health.

What Does Short-Term Disability Cover

This insurance is designed for immediate needs and can cover situations such as:

• Recovery from surgery

• A broken limb

• Complications from pregnancy

• Severe illnesses, such as pneumonia or COVID-19

• Short-term illness

• mental health conditions

What Does Short-Term Disability Not Cover

Don’t Wait Until It’s Too Late!

You cannot obtain a disability policy once you are already injured or sick. It’s important to secure coverage while you are still healthy and working, ensuring protection for your income during vulnerable times.

While you may be eligible for a policy once you are healthy again, you won't receive benefits during the period when you are still sick or injured.

Your policy may not be approved for the following reasons

• Injuries due to the use of illegal substances

• Long-term or permanent disabilities

• Insufficient medical evidence

• Cosmetic procedures

• Self-inflicted injuries

Long-Term Disability Insurance

Long-term disability (LTD) insurance has a similar concept to short-term disability; it's just that the protection lasts much longer.

Instead of covering you for a few weeks or months, a long-term disability insurance policy begins after a longer waiting period and can replace a portion of your income for years, even up to retirement age if needed.

If you were suddenly unable to work due to a long-term or permanent illness or injury, LTD insurance helps you stay financially stable for the long haul.

How does long-term disability insurance work?

• Like most insurances, you enroll in a policy, often through your employer, and may pay a monthly premium to keep it active.

• When you're unable to work due to a serious illness or injury, you can file a claim with your insurance provider. Once approved, a monthly payment is paid directly to you.

• There is typically an elimination period before benefits begin, based on your policy plan. Common options are 90, 120, or 180 days. The longer the elimination period, the lower your monthly premium will be.

• You can determine how long you want your benefit period to be based on your state. You can choose a set number of years (like 2, 5, or 10 years), or coverage that lasts until retirement age, "to age 67".

• The maximum monthly benefit depends on your income and occupation (typically 50% to 70% of your income).

• You can also customize your coverage with different riders

What’s Covered by Long-Term Disability Insurance?

LTD insurance may cover disabilities caused by:

• Chronic illnesses like cancer, etc

• Serious injuries from accidents (like back injuries or loss of limb)

• Extended recovery time after surgeries

• An injury that causes chronic pain

• Mental health disorders such as extreme depression, anxiety, or bipolar disorder that require significant treatment

• Illnesses that affect your ability to perform your job or any job you’re qualified for

Own-Occupation vs. Any-Occupation Coverage

Whether or not you qualify for long-term disability benefits depends on these two definitions of disability: own-occupation or any-occupation.

These terms help the insurance company decide whether your condition meets the standard for being considered disabled.

Interestingly, for many LTD polices, both terms are used hand in hand, just at different times. So, own-occupation coverage starts during the first 24 months of your disability claim, leading to any-occupation definition. However, this depends on various factors, including your health and its severity.

So, what’s the difference?

• Own Occupation means a person is typically considered disabled and can receive benefits if they can’t do the job in their specific field, even if they can work in another field.

  For your claim to be considered, you need to show that you can’t perform the specific tasks your job requires. This doesn’t just mean you feel unwell, but that you can’t meet the physical demands of your role due to any disability, like standing for long hours, lifting heavy objects, or walking throughout the day.

  To back up your claim, you’ll need solid medical evidence. This usually includes:

  • Your medical records

  • Notes or letters from your doctor

• Any Occupation is a tougher standard to meet. After 24 months, you may only receive coverage from your insurer if you’re unable to work in any job, including jobs from in and out of your field. A long as you can work even if it’s a lower-paying or less specialized role, you won’t receive a payment.

How Both Types of Disability Insurance Work Together

Let’s say you wake up one morning with intense back pain, but decide to ignore it.

As time goes on, the pain worsens, and your doctor informs you that you need immediate surgery and a significant amount of time to recover.

What do you do now?

This is where having both short-term and long-term disability insurance becomes a valuable benefit.

Think of Short-term disability insurance as a first responder.

It begins quickly, helping to replace a portion of your income while you are out for surgery and recovery. This coverage typically lasts anywhere from a few weeks up to six months, depending on your specific plan.

But what if your recovery takes longer than six months?

That’s when long-term disability insurance comes into play. Long-term disability insurance provides income support if you are still unable to return to work after the short-term coverage ends.

Reasons to Consider Both Policies

1) You're Loved Ones Are Dependent On Your Wages

 If you are the primary earner, your paycheck keeps your household running from covering expenses like rent to groceries, childcare, and bills.

Short-term disability covers the first few weeks or months when you’re temporarily out of work,

Quick Payout - Benefits are typically paid out within 7 to 14 days, ensuring that if something happens and your income stops, you won’t have to wait long for support.

If you still need time to recover, Long-term disability steps in to provide ongoing income replacement, so you have the coverage ready for you and your family to prevent an immediate financial crisis while you cannot work.

2) You’re Self-Employed

Short-term disability is often provided through employers, but if you are self-employed, you may not have access to paid time off or maternity leave. In such cases, if you cannot work, you do not receive income.

For longer illnesses or injuries that keep you from working for months or years, long-term disability insurance provides income replacement to support you through extended downtime.

You’re not just an employee, but your entire business depends on it.

While individual policies may cost more, they can provide necessary income replacement, allowing you to recover without significant losses to your business.

3) You Don’t Have A Big Emergency Fund

Without income, it's easy to fall into debt or deplete your savings. For most people, building a large emergency fund is quite challenging and a lengthy process.

Even if you do have a sufficient emergency fund, both disability insurance can reduce your dependence on your savings, allowing you to use your hard-earned money for better purposes that align with your future goals and happiness.

4)You Need Support for Common Life Events and Mental Health

Certain life events or health conditions can stop you from working, either for a few weeks or many months.

It is important to be aware that both disability policies not only provide coverage for accidents but also provide support for significant events such as childbirth recovery and scheduled surgeries.

Many policies include coverage for mental health challenges, including burnout and depression, that may require time away from your job.

By having both STD and LTD, you’re covered for both short recoveries and longer-term challenges, ensuring you get to live a stress-free life now and later.

Understanding Disability Insurance: FAQs

Short-Term Disability Insurance

1) Do I have to pay taxes on short-term disability benefits?

Whether you need to pay taxes depends on how you paid your premiums.

To make this simple,

• If you pay for the premiums with after-tax dollars (paid your taxes already), your short-term disability is tax-free. For most policies, taxes get automatically deducted from your paycheck.

• If your employer pays the full premium, your benefits are taxable.

• If you split the cost with your employer, you may have to pay taxes on a portion of the benefits.

2) What is an elimination period for short-term disability insurance?

To recap, the elimination period is the waiting period before the benefits start.

In terms of short-term disability insurance:

• It usually ranges from 0 to 14 days.

• During this time, you may have to use your sick leave or vacation days.

3) What if you’re still not physically ready to go back to work, when your short-term policy ends?

If you’re still unable to work, thats when long-term disability (LTD) kicks in.

You can apply for the LTD right after. But, LTD has its own application and elimination period (commonly 90–180 days).

You’ll also need updated medical records to prove your disability.

4) Does Taking Short-Term Disability Guarantee My Job is Protected?

Not necessarily, short-term disability insurance gives you income protection, but not job protection.

Those decisions depend on your employer and the company you work for. However, your job may be protected under the FMLA (Family and Medical Leave Act) if you’re eligible.

Long-Term Disability Insurance

1) How Much Does Long-Term Disability Insurance Cost in 2025?

Premiums depend on the following factors:

• Your occupation

• The length of the benefit period

• The amount of income you want to replace

• The elimination period (how long you wait before benefits begin)

• Any additional riders like COLA (Cost Of Live Adjustment) to help you protect against infaltion

However, disability insurance costs between 1% and 3% of your annual salary.

So, if you make $100,000, expect to pay $1,000 to $3,000 per year.

2) What Happens If I Have More than One Long-Term Disability Insurance Policy?

Yes, you can have multiple long-term disability insurance policies.

Many people choose to supplement their employer-sponsored long-term disability insurance with additional coverage to increase their total protection and safeguard more of their income.

3) Will my long-term disability insurance payments go down if I get other benefits?

Yes, your monthly payments from long-term disability insurance may be reduced if you receive other benefits, which is referred to as an offset.

For instance, if you qualify for Social Security Disability or state disability benefits, your insurance company may lower your monthly payments to ensure that your total income does not exceed your prior earnings.

It’s essential to review your policy regarding offsets before making a decision.

4) How long will I receive long-term disability insurance payments? 

How long you receive your payments depends on your policy. Some plans pay benefits for a few years, from 5 to 10 years, while others pay until you reach retirement age (usually around 65).

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