Short-Term Disability Insurance

Short-term disability insurance is an under-appreciated but critical benefit offered by many employers. A short-term illness or injury can impede a person’s ability to earn income. Even if for only a short time, this can cause significant hardship for a household and lead to long-term financial consequences. Unfortunately, about 30 percent of Americans between ages 35 and 65 will suffer a disability lasting at least 90 days at some point during their career.

Short-term disability claims are most commonly claimed for:

• Pregnancy (25%)
• Musculoskeletal disorders affecting the back and spine, knees, hips, shoulders, and other parts of the body (20%)
• Digestive disorders, such as hernia and gastritis (7.8%)
• Mental health issues, including depression and anxiety (7.7%)
• Fractures, sprains, and strains of muscles and ligaments (7.5%)
• Short-term disabilities are covered by Workers’ Compensation only if the disabling illness or injury was directly work-related. However, the vast majority of disabilities do not meet this criteria. In 2016, only one percent of US workers suffered from a work-related disability.

Group Disability Insurance

There are several types of disability insurance, but not all are available to everyone. Some employers offer Short-Term Disability (STD), which is private insurance that replaces a portion of a worker’s income if an injury or illness prevents him from working. An employer group policy generally features low premiums and is often paid for by the employer.

Benefits range between 40 and 70 percent of a worker’s wages, but typically 60 percent. STD benefits generally are available from three to six months. However, there may be a waiting period before benefits kick in, during which time the worker may wish to claim paid sick leave or even vacation benefits to cover lost wages. Some employers require the worker to use up all available paid time off before becoming eligible for the group short term disability plan.

For workers who do not have access to an employer plan, short-term disability insurance also can be purchased on the individual market, but premiums tend to be substantially higher.

State Disability Insurance

There are presently five states that offer some form of State Disability Insurance (DI). They are California, Hawaii, New Jersey, New York and Rhode Island, as well as Puerto Rico. State benefits are generally coordinated with employer disability benefits to help workers replace as much income as possible while they are unable to work.

State disability programs require that a worker have contributed a minimum specified amount (via contributions from his paycheck) into the state disability insurance fund in order to qualify for benefits. When filing a claim, the worker must be incapable of performing the requisite tasks for his job, and be under the care of a healthcare professional.

Certain states (California, New Jersey and Rhode Island) also offer paid family leave under the State Disability Insurance umbrella. Paid family leave provides partial wage replacement for eligible workers who must miss work to take care of a child, spouse, domestic partner, parent or other immediate family members.

Among the states that offer DI, benefits are capped at a maximum duration:

• California: 52 weeks for disability; 6 weeks for paid family leave
• Hawaii: 26 weeks
• New Jersey: 26 weeks for disability leave; 42 days for family leave
• New York: 26 weeks
• Puerto Rico: 26 weeks
• Rhode Island: 30 weeks

The amount of benefit varies by state and is based on the worker’s compensation. Higher incomes generate higher disability benefits, although each state places a limit on the amount of benefit it will pay out.

Social Security Disability Insurance

Disability benefits also are available through the national government program, issued by Social Security. However, Social Security Disability Insurance (SSDI) is notoriously difficult to qualify for benefits. SSDI eligibility criteria stipulates that the applicant must be unable to work because she has a medical condition that is expected to last at least one year or result in death. Only about a third of people who apply for SSDI benefits are approved to receive them.

There is a five-month waiting period before applications are reviewed, but in reality it could take one to two years to receive approval.  If the approval process takes more than five months, the applicant may be eligible for retroactive benefits. Note too, that if the applicant’s household income exceeds a certain threshold, his disability benefits may be subject to income taxes.

Much like Social Security retirement income benefits, the amount of payout is based on the number of years worked and income earned. SSDI payments generally range between $800 and $1,800 per month, with a maximum benefit of $3,011 per month. As of April 2021, the average SSDI benefit was $1,146 a month.

Integration of Benefits

It is possible for a disabled worker to receive a combination of benefits from these sources. However, the combined total of monthly benefits may not exceed his normal income. If a worker qualifies for state disability insurance, he can coordinate that benefit with his employer STD plan to pay out the balance of wages not covered by DI. For example, say a worker earns a gross weekly wage of $500. If his DI weekly benefit is $275, his employer plan can pay up to $225 per week to equal 100 percent of his normal salary. It is the responsibility of both the worker and the employer to ensure that combined benefits do not exceed more than 100 percent of his wages.

Workers also are permitted to collect Social Security disability benefits at the same time that they receive disability payments from a private insurance policy, group employer plan, or state disability insurance. However, note that the SSDI amount paid may be “offset” by other short-term disability payouts.

California

 The highest number of workers in the United States are in the state of California. In 2020, that was about 16.9 million people. It is fortunate, therefore, that California is one of the five states that offers a state disability insurance program.

California State Disability Insurance (SDI) is a partial wage-replacement insurance plan for eligible California workers. It is state-mandated and funded through payroll deductions.

To be eligible for benefits, a worker must meet all of the following criteria:

• Be unable to work for at least eight days
• Either have been employed or actively seeking a job at the time he became disabled
• Have lost wages due to the disability
• Have earned at least $300 from which State Disability Insurance (SDI) deductions were withheld

SDI benefits are paid weekly to cover approximately 60 to 70 percent of wages earned in the five to 18 months prior to the claim start date, up to a maximum benefit amount. Benefits are available up to 52 weeks and are not subject to income taxes.

Where To Apply

The most important factor in applying for short-term disability benefits is how long the injury or illness is expected to prevent the person from working. If the timeline is one year or less, the worker should apply for benefits under his employer and/or state disability insurance plan (or an individual plan if he has one). If the disability is likely to continue for more than one year, or permanently, the worker should also begin the process for applying for Social Security Disability Insurance (SSDI) benefits.

Disability insurance, like life insurance, forces people to think about what would happen to their financial situation if they could not work. While we don’t think twice about insuring our home or cars, there is a smaller chance we’ll actually need that insurance. According to analysis of data from the Society of Actuaries and the National Safety Council, the relative likelihood of experiencing a housefire is one in 88, and an auto accident is one in 80.

However, the average person has a one in seven chance of experiencing a disability.

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