Short and Long Term Group Disability Insurance Basics Explained

A person can be entitled to disability benefits based on total or partial disability. Total disability is defined as being unable to perform all the duties of his or her occupation due to sickness or injury. The actual length of time that a person is considered disabled based on the “own occupation” definition varies, and some carriers allow up to 24 months from date of sickness or injury. A person may also be entitled to partial disability benefits if they are unable to perform some of the duties of the occupation due to sickness or injury. A partial disability benefit often reduces the benefit after a period of time to provide a return-to-work incentive.

Depending on the structure of the plan, and the length of time an employee is employed before employment is terminated, disability benefits may also be portable to the employee. This allows the employee to maintain the benefit even after voluntary or involuntary termination of employment.

There are two types of disability benefits – Long-Term and Short-Term. Short-Term Disability Insurance is designed to supplement existing insurance coverage by replacing a percentage of income, if a non-occupational disability occurs. The premium for the benefit will vary based on certain variable factors:

Elimination periods: These are the number of days beginning with the first day of disability before any benefit is payable. There is usually a 7 day or 14 day elimination period in a disability policy.
Benefit periods: The duration for which benefits are payable after the elimination period ends. Plans often include choices such as 13 weeks or as much as 26 weeks. Benefit periods beyond 26 weeks generally fall under the Long-Term Disability coverage.
Benefit Amount: The benefit amount is usually a percentage of income such as 50% or 60% of salary up to a defined maximum monthly benefit. The maximum benefit allowed is often subject to state specific regulations.

Short-Term Disability (STD) plans generally offer a Waiver of premium benefit that will waive the requirement to pay premium when an insured is receiving disability benefits. Another provision commonly found in these policies is the guarantee that premiums will not increase on existing coverage as you age, and your coverage is guaranteed renewable up to age 70 as long as premiums are paid when due.

Coverage for Short-Term Disability may be limited by a number of exclusions that include:

Pre-Existing Conditions – usually 12 month time limit
Limits from state regulations
Injury for which benefits are covered under workers’ compensation
Employee must be under the regular care of physician during the period after an injury in order to receive coverage
Intentional or self-inflicted injuries

Underwriting guidelines also impact the writing of a Short Term Disability. Policies often require a minimum number of employees or a percentage of the eligible employee group, whichever is greater. In addition, minimum premium requirements often apply on disability policies.

Long-Term Disability (LTD) provides protection for more serious injuries that extend beyond the period of short-term coverage. Similar to Short-Term Disability premium, the premium for Long-Term Disability will vary based on a number of factors:

Elimination periods: These are the number of days beginning with the first day of total disability before any benefit is payable.
Benefit periods: The duration for which benefits are payable after the elimination period ends. Plans often include choices such as 90 days, six months, one year etc. Some more comprehensive plans include options to age 65.

Benefit Amount: The benefit amount is usually a percentage of income such as 50% or 60% of salary up to a defined maximum monthly benefit. The maximum benefit allowed is often subject to state specific regulations.

Long-Term Disability also offers the waiver of premium option while benefits are payable. In addition, Long-Term Disability offers a family income benefit paid to the surviving spouse or children. Long-Term Disability benefit is subject to similar exclusions as outlined above for the Short-Term Disability benefit.

Contributed with the permission of Jeffrey Schreiber, ARM