Quick summary

Short‑term and long‑term disability insurance both replace income when you can’t work because of illness or injury, but they serve different time horizons and uses. STD covers the immediate recovery window; LTD protects against long‑term or permanent work loss. Which you should buy depends on your employer coverage, savings, job risk, and household expenses.

Key differences at a glance

  • Benefit length: STD typically pays for 3–6 months; LTD can last years or until retirement age, depending on the policy.
  • Elimination (waiting) period: STD often starts within days to a couple of weeks; LTD commonly has an elimination period of 60–180 days (90 days is common).
  • Benefit amount: STD replacement is often 50–80% of salary; LTD is commonly 50–70%.
  • Definitions of disability: LTD policies commonly use “own‑occupation” or “any‑occupation” definitions—this materially affects your ability to collect benefits.
  • Cost and portability: Employer group STD is often low‑cost or free through payroll; LTD premiums vary and individual LTD policies are portable if you leave a job.

(These are typical ranges—not guarantees. Always read policy details and ask for the insurer’s benefit summary.)

Why both matter

Relying on only one type leaves gaps. STD covers immediate bills during short recoveries; if your condition lasts longer than STD’s benefit period, LTD prevents your income from collapsing once STD ends. Many financial plans pair short‑term coverage with an LTD policy or carry an emergency fund large enough to bridge the LTD elimination period.

How policies commonly work

  • Group vs individual: Employers often offer group STD and LTD. Group plans can be cheaper but may be less generous and less portable; an individual policy can be customized and stays with you if you change employers.
  • Own‑occupation vs any‑occupation: Own‑occupation LTD pays if you cannot perform your usual job; any‑occupation pays only if you cannot perform any job for which you are reasonably suited by education and experience. High‑earning professionals generally prefer own‑occupation language.
  • Offsets: LTD benefits are often reduced (offset) by other income sources such as Social Security Disability Insurance (SSDI) or workers’ compensation. Review how a policy coordinates with other benefits.

Sources: Consumer Financial Protection Bureau (CFPB) guidance on disability insurance and Social Security Administration (SSA) information on SSDI (see links in Resources). (CFPB: https://www.consumerfinance.gov/ask-cfpb/what-is-disability-insurance-en-1793/, SSA: https://www.ssa.gov).

What to compare when shopping

  1. Benefit amount (monthly benefit and replacement percentage)
  2. Benefit period (months/years or to age 65)
  3. Elimination period (how long you must be disabled before benefits start)
  4. Definition of disability (own vs any occupation)
  5. Residual/partial disability benefits (for reduced‑earnings scenarios)
  6. Cost‑of‑living adjustments (COLA) and inflation protection
  7. Portability and non‑cancelable/guaranteed renewable clauses
  8. Exclusions and pre‑existing condition limitations
  9. Coordination of benefits (offsets with SSDI, workers’ comp)
  10. Claim process and insurer’s claim approval/appeal track record

Typical costs and tax treatment

  • Premiums: STD premiums for employer group plans are often low or employer‑paid; LTD individual policies are more expensive and vary by age, occupation, income, and health. Buying LTD earlier (when younger and healthier) usually lowers premiums.
  • Taxes: Whether benefits are taxable depends on who paid premiums and how they were treated for tax purposes. If your employer paid the premium and did not include the cost in your taxable income, benefits are typically taxable; if you pay premiums with after‑tax dollars, benefits are generally tax‑free. For specific tax guidance, consult the IRS (https://www.irs.gov) or a tax professional.

A practical decision framework (step‑by‑step)

  1. Inventory coverage: Get benefit summaries for any employer STD/LTD and note benefit percentages, elimination and benefit periods, and whether premiums were paid pre‑ or post‑tax.
  2. Calculate your true monthly need: List essential costs—mortgage/rent, utilities, food, insurance, debt payments, childcare—and what other income you could tap (partner income, savings, rental income).
  3. Determine your bridge plan: If employer STD covers 3 months and you have six months of emergency savings, consider an LTD with a 90‑day elimination period. If you lack savings, either lengthen STD coverage (if available) or buy a shorter elimination LTD.
  4. Prioritize definitions: If you are a specialized professional (surgeon, CPA, architect), aim for own‑occupation coverage on LTD.
  5. Consider portability and guarantees: If you may switch jobs, lean toward individual LTD or a combination of employer group LTD plus an individual policy.

Real‑world scenarios

Claims, documentation and common pitfalls

  • Documentation: Keep medical records, employer statements, and proof of earnings. Claims often hinge on consistent documentation and timely submission.
  • Appeals: Denials are common; follow the insurer’s appeal process, get a second medical opinion when needed, and consider an attorney experienced in disability claims for long‑term denials.
  • Misconceptions: Don’t assume group LTD is generous or guaranteed; definitions and offsets can effectively reduce benefit value. Also, don’t assume a short elimination period eliminates the need for LTD—many disabling conditions are chronic.

Checklist before you accept or buy a policy

  • Did you get a detailed certificate or policy document? Read it.
  • Does the definition of disability match your occupation risk? (Own vs any)
  • Are there pre‑existing condition exclusions or limited benefits for mental health/substance use?
  • How does the policy coordinate with SSDI, state disability programs, and workers’ comp?
  • Is there a residual benefit if you can work reduced hours?
  • How will premiums change over time? Are they guaranteed level?

Where to get help and trustworthy resources

Closing advice

In my practice I’ve seen two repeated patterns: (1) Buying LTD early is often cheaper and protects future earnings, and (2) understanding the definition of disability (own vs any) is the single most important detail for high‑income earners. Balance immediate cost against long‑term risk: if a disabling condition would prevent you from working for a year or more, LTD should be a priority.

Professional disclaimer: This article is educational and does not constitute personalized financial, insurance, or tax advice. For decisions about coverage, consult a licensed insurance agent, an attorney specializing in disability claims, or a tax advisor.

Sources and further reading