The Long and Short of Disability Benefits

If you’re interested in offering a disability plan to your employees, but aren’t sure whether to choose a short- or long-term plan, consider these additional facts:

Short-term

The short-term plan is the most popular. According to the United States Department of Labor, 93 percent of private industry workers are covered by a short-term plan — also known as a fixed-duration plan.

Short-term disability plans are intended to replace lost wages for a short time — usually for six months after sick leave is exhausted. The policy might pay a large percentage of lost salary at first, but payments are often reduced to 60 percent of pre-disability salary or less after a few weeks. However, many of the conditions that lead to the need for short-term disability benefits — pregnancies, strains and sprains — usually do not need the full 26 weeks to heal.

To qualify for short-term disability, an employee must complete six months of continuous employment and have used all paid leave, including vacation, personal days and sick leave.

Long-term

A long-term disability plan offers protection for catastrophic illness or injury, including heart disease, musculoskeletal and connective tissue conditions, hypertension and diabetes. These payments pick up where a short-term disability plan stops, often lasting five to 10 years or until age 65 or longer.

A long-term disability plan pays benefits averaging 60 percent of annual earnings.  Most long-term plans have a maximum monthly payout. In 2014, that amount equaled $8,000 per month.

Disability benefits are taxable if the employer pays the premium or the employee pays the premium from pre-tax income.

 

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