Short-Term

Short-term disability benefit payments are usually based on a specified percentage of pre-disability income (e.g., 60%).  The length of time benefits are paid varies from policy to policy, but the maximum benefit period is usually less than six months. Short-term disability coverage may be used to fill in the elimination period before long-term disability benefits begin.

Long-Term

Benefits may continue anywhere from five years to the remainder of an individual’s life, depending on what is purchased.  Long-term disability insurance is generally considered protection against a catastrophic illness or injury, but many long-term disability claims result from common medical conditions that cause an increasing level of impairment over time.  It is important when purchasing coverage to check a policy’s maximum benefit period.

Individual vs. Employer/Group Provided Disability Insurance

Group disability insurance that may be offered to you by your employer or another group is generally significantly less expensive than coverage you can buy directly on the individual market.  However, there are also significant differences you should know.  Certain limitations on group coverage may be a reason for you to consider supplementing your coverage with individual coverage:

  1. Cancellation and Portability
    • Individual Coverage: Individual policies are typically guaranteed renewable and/or non-cancellable, which means they will continue unless you do not pay the premiums or cancel the policy yourself.
    • Group Coverage: Keep in mind that disability coverage can be cancelled by an employer. You may be able to take the coverage with you if your employment is terminated, as long as the group policy has a conversion and/or a portability provision.
  2. Exclusions
    • Individual Coverage:  There will be exclusions in an individual policy, but for the most part they will only relate to any pre-existing conditions you have personally.
    • Group Coverage:  A group policy will most likely have more exclusions.
  3. Benefits/Options
    • Individual Coverage: An individual disability insurance policy will offer you a wide range of choices.
    • Group Coverage:  A group policy will provide whatever the employer chooses for benefits/options. While it's possible that your employer's group plan offers all of the features you want, the individual plan will give you more control and typically more choices.
  4. Definition of Disability
    • Individual Coverage:  Individual policies typically will offer the most beneficial definition of own occupation which will cover you under the widest range of circumstances.
    • Group Coverage: Group policies typically have two definitions of disability. The first definition of disability is referred to as "Own Occ", which is tied to the performance of your own type of occupation found in the workforce, not the specific duties you have with your employer. After a period of time, normally 24 months, the disability definition will change to "Any Occ", which means that in order to qualify for continued benefits, you must be unable to perform the duties of any occupation you are suited for, based on your training, education, and experience.
  5. Benefit Levels and Periods
    • Individual Coverage:  
      • Benefits under an individual policy can potentially be paid for the remainder of your life.
      • An individual disability insurance policy is more likely to provide you with the fewest gaps in coverage and offer higher monthly benefit limits.
      • Riders can be purchased for cost of living adjustments and future benefit increases.
      • Benefits will not be reduced by other income received during the claim (e.g., Social Security).
      • Individual policies are more generous and can include various income sources to determine the highest benefit amount you can purchase.
      • If you purchase an individual policy with a set benefit amount, you do not have to document your income at time of claim.
      • Always seek advice from your tax professional.
    • Group Coverage
      • The Maximum Benefit Period under a group policy is typically to age 65.
      • Group policy benefits are reduced by other income.  
      • Group disability coverage is tied to your W-2 income or base salary. Benefits, bonuses, commissions, retirement plan contributions and incentives are typically not included when calculating benefits.
  6. Medical Exams/Underwriting
    • Individual Coverage:  Individual disability policies usually require that you have a medical exam. Whether you are granted a policy, which exclusions apply, and the cost of the policy all rely on the outcome of the exam.
    • Group Coverage:  Group disability insurance will typically be offered without any medical exam or other proof of health if the employee applies for coverage within 30 days of being hired.