Long-Term Disability Insurance vs Short-Term Disability Insurance Explained

Disability insurance provides financial security and peace of mind to those looking for additional protection if they can no longer work due to an injury or disabling illness. Americans suffer chronic and debilitating illnesses more and more every year. These injuries and ailments can dramatically impact a person’s ability to work. Thus, many workers have the option of obtaining disability insurance to supplement their income in times of medical crisis.

What is Texas Disability Coverage?

Disability insurance is a form of insurance designed to supplement a person’s income while that person is out of work – often related to a medical illness. This type of insurance allows workers to supplement their income during medical treatment and / or recovery. Depending on the coverage plan, insurance may cover between a couple of months to a year or more of income.

Texas is one of many states that does not offer government-funded disability coverage. Instead, Texans must utilize Social Security Disability Insurance (SSDI), Supplemental Security Income (SSI), Veterans disability benefits (applicable to U.S. Veterans), or private disability coverage. This blog’s primary focus is privately funded disability insurance plans.

Minimum Standards for Disability Coverage

Texas law refers to short-term disability and long-term disability insurance as “disability income protection coverage.” Under 28 Tex. Admin. Code § 3.3075, the minimum standard for disability income protection coverage includes the following:

  • The plan must provide a periodic payment of at least $100 per month, payable through age 62 and payable for at least $50 after age 62.
  • The plan must contain an elimination period of 90, 180, or 365 days, depending on the policyholder’s circumstances.
  • The plan must have a maximum time period for payable benefits of at least six months.

Insurance companies cannot offer disability income protection coverage plans in the state of Texas without abiding by these minimum standards.

The Differences Between Long-Term Disability Insurance and Short-Term Disability Insurance Coverage

Hands hovering over image of a person in a wheelchair. Long term disability vs short term.Disability insurance provides a policyholder with supplemental income while on leave from their employment due to a disability. However, there are two forms of disability coverage based on the type of disability a person is experiencing and the duration of their disability.

Short-term disability insurance coverage allows a person to obtain supplemental income while dealing with a disabling affliction. This type of insurance can last three to six months, depending on the disability. Most short-term disability insurance plans cover approximately 40 percent to 70 percent of a person’s income when they become eligible for coverage. Short-term disability insurance coverage only covers afflictions that can be recovered from over a short period of time.

Long-term disability insurance coverage allows a person to supplement their income after a crippling injury or illness that leaves them unable to work for the foreseeable future or even for the rest of their lives. Long-term disability coverage typically pays 60 percent of a person’s gross monthly wage during the coverage period.

Long-term disability coverage can span a year or more, including the duration of time from disability inception until the insured becomes eligible for Social Security or retirement. The terms of coverage will vary by policy.

Understanding Disability Coverage

Those seeking disability coverage from private insurance should understand what they can expect in most disability insurance policies. See below for a breakdown of standard disability insurance policies and their clauses.

Eligibility Clause

After a policyholder has purchased the plan and commenced paying monthly premiums, a particular set of circumstances must occur before they can utilize their disability benefits:

  1. The policyholder must complete a mandatory waiting period before becoming eligible for benefits under the plan.
  2. Plans typically include an assessment conducted by a medical professional who can adequately evaluate the claim for disability benefits by reviewing the policyholder’s injury or illness.
  3. The insurance company typically conducts an independent third-party review of the claim by another medical professional of its own choosing.

Pre-Existing Condition Clause

Most clauses governing pre-existing conditions do not preclude a person with a pre-existing condition from purchasing disability insurance coverage and utilizing their benefits when the need arises.

Instead, a pre-existing condition clause usually encompasses illnesses and injuries that occurred within the prior three months before obtaining coverage. In those cases, the insurance company may prohibit a policyholder from obtaining income benefits from the plan for the first six months of coverage.

After the preliminary six months of premiums have been paid, the policyholder will likely have to enter a waiting period. Once the waiting period has ended, the policyholder will probably be eligible for benefits.

Waiting Period Clause (Long-Term Disability Insurance)

Disability insurance form. Long term vs short term disability.As stated above, policyholders may have to engage in a waiting period under a disability plan before obtaining benefits. This waiting period is similar to a probationary period to deter users from receiving benefits directly after purchasing coverage. Under most waiting period clauses, a policyholder will likely have to wait anywhere from 180 days to six months to qualify for coverage. Often, policyholders must utilize their employer-provided sick and benefit time before receiving income benefits from a disability plan.

Coverage Period

The coverage period depends on the nature of the affliction and the plan’s parameters. For short-term plans, a person can expect to see between three to six months of benefits. However, this depends on the policyholder’s illness and whether it is a short-term affliction. For long-term plans, policyholders should expect benefits for as long as they are disabled, which can easily reach a year or more of benefits.

Monthly Benefits

Monthly benefits range from 40 percent to 70 percent of the policyholder’s income, depending on the type of coverage and policy terms. Most plans will calculate how much to provide in monthly benefits using a person’s average weekly wage or gross monthly wage, which all depends on the policy and the person’s occupation. For example, if a person earns $2,000 a month in wages, they can expect to receive $800 to $1,400 a month in disability benefits.

Can I Use Disability Insurance While on FMLA Leave?

The short answer is yes. The Family Medical Leave Act offers eligible employees 12 weeks of unpaid leave due to a qualifying medical or family event. During the leave period, the employee’s position with their employer is protected from termination. Qualifying events can include:

  • Birth of a child.
  • Adoption or foster care of a child within one year of placement.
  • Affliction of an illness or injury that renders an employee unable to perform their essential job functions.
  • Providing care to a qualifying family member.

When on FMLA, a person may be eligible for disability benefits depending on the type of plan they purchase. For long-term disability insurance coverage, FMLA leave will likely expire before a person is eligible for disability insurance coverage, which means the benefit may only be utilized after they are no longer on FMLA leave. However, because short-term disability insurance has a shorter eligibility window, a policyholder may use disability insurance to supplement their income while on leave.

Contact Us About Your Disability Claim Today

Disability insurance can be a savior to many experiencing a long-term or short-term disability. However, understanding a disability insurance policy and the claims process can be difficult. If you have questions or concerns about your disability coverage, please contact one of our Houston disability insurance lawyers today at Berg Plummer Johnson & Raval, LLP for a consultation.

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