Short-Term vs. Long-Term Disability Explained: Benefits and Differences

An illness or injury may sometimes prevent employees from working, with consequences that extend beyond their health to your business operations. It may affect their income and household stability. Disability insurance helps close the financial gap. If you're considering short-term vs. long-term disability insurance, you should examine what each offers and how they differ. It'll help you determine what to provide in your benefits package. 

What is Short-Term Disability and How Does it Work?

Short-term disability provides income replacement when an employee is unable to work due to a qualifying medical condition. Here are some examples:

• Surgery recovery

• Maternity leave

• Temporary illness or injury

Policies replace a percentage of your employees' wages (usually between 40% and 70%) for a specified period. Benefits can last anywhere from a few weeks to a year, depending on the plan. Some policies also include a waiting period before benefits take effect. If you consider offering this policy to your employees, it's important to note that short-term disability does not cover work-related injuries or incidents.

Benefits

Short-term disability gives employees peace of mind during temporary setbacks. It ensures they can manage household expenses while recovering. For you, short-term disability coverage demonstrates a commitment to your employees’ well-being. It can strengthen retention by offering meaningful support during critical life events.

Limitations

The benefits are only available for a set period. They won’t cover employees facing prolonged or permanent conditions. Policies vary, so certain illnesses or injuries may not qualify. These gaps could leave some employees vulnerable if they don't have access to other forms of coverage.

What is Long-Term Disability?

Long-term disability insurance protects your employees when a serious illness or injury prevents them from working. It covers conditions that can last several months or even years. In some cases, coverage may last until retirement age.

Most policies replace 50% to 70% of an employee’s income. Since it’s intended for more serious conditions, there may be a longer elimination period before benefits begin. The qualifying period can last up to 90 days or more.

Benefits

Long-term disability coverage provides financial security. It helps employees manage major expenses, such as mortgage payments and medical bills, during lengthy recoveries. This type of coverage can also bring peace of mind to your employees, especially if they’re unsure how long they’ll be in recovery.

Limitations

Long-term disability insurance also has some limitations. Premiums are often higher than those for short-term disability plans. Your employees will have to wait longer for their benefits to take effect. Without short-term disability or savings to cover the gap, workers may struggle financially until their coverage starts.

What's the Difference Between Short-Term and Long-Term Disability Coverage?

As explained above, short-term vs. long-term disability coverage varies significantly. Here’s how the policies compare side by side:

Long-Term Versus Short-Term Disability Benefits

How to Determine Which Disability Coverage You Need for Your Business

There are different types of employee benefits you can offer to your team, including long-term and short-term disability insurance. Together, they can support your employees during short recoveries and long-term challenges.

For example, an employee may initially rely on short-term disability benefits to cover their income while recovering from an illness or injury. Their condition could turn out to be chronic or long-term. The employee will then need to transition to a long-term plan. To facilitate this process, you'll have to create a benefits package that offers both types of disability insurance. Your employee also needs to enroll in both before incidents occur.

Long-Term Versus Short-Term Disability Insurance Options

Most plans provide flexibility to respect your budget and workforce needs. Here’s how you can structure your plans:

• Employer-Paid Plans: You cover the full cost and include disability insurance as part of a standard benefits package.

• Employee-Paid or Voluntary Plans: Your employees can opt in and pay for coverage at group rates, keeping your costs minimal.

• Shared-Cost Plans: You contribute to the premium, while your employees cover the rest for added protection.

• Customized Plans: You can tailor coverage to align with state requirements, the industry, your budget, and workforce demographics.

Common Misconceptions About Disability Insurance

Short- vs. long-term disability insurance is often misunderstood, leading to common misconceptions. Clearing these misconceptions helps you understand how disability coverage works in practice and find the right mix for your business. Here are some examples:

• Workers’ Compensation is Enough: Workers’ compensation insurance covers only job-related injuries and illnesses. Most disabling conditions, such as cancer or serious accidents outside of work, fall outside its scope.

• Younger Employees Don't Need it: Disabilities can affect employees of any age. Even temporary issues, like a complicated pregnancy or back surgery, can take someone out of work for weeks or months.

• It's too Expensive: Some employers assume the cost will outweigh the benefit. But you can tailor your policies to fit a range of budgets. Many plans also allow employees to contribute or opt in voluntarily, making coverage more accessible and affordable.

Providing Access to Disability Coverage and Other Benefits with Justworks

Disability coverage works best when it’s part of an extensive benefits package. Even as a small business, you have options that can meet your budget and needs. With Justworks’ Professional Employer Organization (PEO) platform, you can get access to short- and long-term disability insurance as well as large-group health insurance. It means you can offer high-quality benefits at more affordable rates. You'll get compliance management, simplified payroll, 24/7 support, and HR tools to manage your employees and tasks. Get started with Justworks today.