Quick overview

Short-term disability (STD) and long-term disability (LTD) insurance are complementary tools for income protection. STD bridges the immediate gap after an illness or injury, while LTD steps in for longer recoveries or permanent changes in your ability to work. Both vary by employer plan and individual policy, so the right choice depends on your job, savings, and household obligations.

How short-term disability works

  • Typical benefit: 60–80% of pre-disability earnings (some policies use a flat benefit).
  • Typical duration: from a few weeks up to 6 months (many common plans are 13, 17, or 26 weeks).
  • Waiting period: often no waiting period or a short one (e.g., 0–14 days) because STD is meant to start quickly.
  • Common uses: recovery after surgery, childbirth, short-term injuries, or acute illnesses.

In practice, STD lets you focus on recovery without immediately dipping into emergency savings. Employer-paid plans may offer STD at low or no direct cost to employees; private plans are also available for those without employer coverage.

How long-term disability works

  • Typical benefit: 50–70% of pre-disability earnings (subject to policy maximums).
  • Waiting (elimination) period: commonly 30–180 days — this is the time between disability onset and when LTD benefits begin.
  • Benefit duration: can be a set number of years (2, 5, 10 years), until age 65, or to Social Security normal retirement age (varies by policy).
  • Definition of disability: varies — “own-occupation” policies pay if you can’t perform your specific job; “any-occupation” policies pay only if you can’t work any job for which you’re reasonably qualified.

LTD is typically more expensive than STD because it replaces income for longer periods and includes underwriting (medical and occupational review). Many employer LTD plans are group policies with simplified underwriting but may be less generous than individual policies.

Coordinating STD and LTD

Most people who want continuous protection buy both: STD covers the short gap and LTD begins after the elimination period. If you only have LTD with a long elimination period, you’ll need savings or sick leave to cover the interim. Employer sick leave, paid time off, and short-term plans can be stacked; check your employer’s coordination rules and benefit offsets.

Real-world examples (practical perspective)

  • In my practice I’ve helped a client, Sarah, who had ACL surgery. Her employer STD paid 70% of her salary for 12 weeks; she used that time to recover and didn’t need LTD. Having STD prevented her from cashing retirement assets early.

  • Another client, Mark, had a cardiac event and returned to work part-time after several months but could no longer hold his prior responsibilities. His LTD (own-occupation) paid benefits after a 90-day elimination period and provided a partial wage replacement while he retrained for lighter work.

These cases illustrate why both timing and the disability definition matter.

Key factors when choosing coverage

  1. Income replacement need: Tally fixed monthly expenses (mortgage, utilities, insurance, minimum debt payments). Aim to insure the portion of income you cannot cover from savings. Many advisors target 60–70% replacement but personal budgets vary.

  2. Emergency savings and sick leave: If you have a large emergency fund and robust employer sick leave, you might prioritize LTD and accept a longer LTD elimination period. Conversely, limited cash reserves increase the value of STD.

  3. Occupation and ability to modify work: Manual and higher-risk jobs typically need stronger coverage. If your role is highly specialized, an own-occupation LTD is especially valuable.

  4. Cost and tax treatment: Employer-paid premiums are usually pre-tax and benefits are taxable to you when paid. If you pay premiums with after-tax dollars (individual policy or voluntary employer coverage paid with after-tax payroll deductions), benefits are generally tax-free. See IRS Publication 525 for rules on taxability. (IRS: https://www.irs.gov/publications/p525)

  5. Policy features and riders: Look for COLA (cost-of-living adjustment), partial disability, residual disability, and future-purchase options. Riders can increase premiums but add crucial flexibility.

Common plan provisions to check

  • Maximum benefit period and age limit
  • Elimination period for LTD
  • Definition of disability (own-occupation vs any-occupation)
  • Benefit offsets (Social Security, workers’ comp, other employer benefits)
  • Medical evidence and ongoing disability proof requirements

Cost considerations and buying strategy

  • Employer group coverage tends to be cheaper but may be limited in scope and portability. If you change jobs, group benefits may end.
  • Individual policies cost more but are portable and customizable. They can be medically underwritten and may be easier to tailor for high-income earners or those with high physical risk.
  • If you can afford only one policy, consider buying LTD first (with a comfortable elimination period) and plan to add STD or shore up short-term cash reserves.

Mistakes I see frequently

  • Relying solely on employer STD and assuming LTD will be automatic — LTD often has separate enrollment and medical underwriting rules.
  • Overlooking the policy’s definition of disability — an any-occupation definition may make benefits harder to obtain.
  • Ignoring benefit offsets that reduce your total payout when combined with other benefits.
  • Treating disability insurance like life insurance — they serve different financial roles.

Buying checklist

  • Calculate your monthly shortfall if you stopped earning today.
  • Check employer benefits and enrollment deadlines.
  • Compare own-occupation vs any-occupation definitions.
  • Ask about guaranteed purchase options and cost-of-living riders.
  • Get quotes for individual LTD if you want portability or higher benefits.
  • Review tax treatment of premiums with a tax advisor (see IRS Pub. 525).

Frequently asked questions

Q: Can I have both STD and LTD?
A: Yes; many people use STD to cover the initial period and LTD for long-term needs.

Q: Are disability benefits taxable?
A: If your employer paid the premiums or you paid premiums with pre-tax dollars, benefits are generally taxable. If you pay premiums with after-tax dollars, benefits are generally tax-free. Consult IRS Publication 525 and a tax professional for your situation (IRS: https://www.irs.gov/publications/p525).

Q: How likely is disability?
A: The Social Security Administration estimates a substantial lifetime risk: roughly one in four of today’s 20-year-olds will become disabled before they retire (SSA: https://www.ssa.gov). That underscores why income protection matters.

Useful internal resources

Final recommendations (professional view)

In my practice over the past 15 years I’ve found that a layered approach works best for most households: keep 3–6 months of liquid savings for immediate needs, enroll in employer STD if available, and secure an LTD policy with an elimination period that aligns with your cash reserves. For high-risk or high-income professionals, an individual own-occupation LTD policy is often worth the extra cost.

Authoritative sources and further reading

Professional disclaimer

This article is educational and not personalized financial, insurance, or tax advice. For recommendations tailored to your situation, consult a licensed insurance agent, a financial planner, or a tax professional.