Short-Term vs Long-Term Disability Insurance: What’s the Difference?

My coworker’s husband fell off a ladder cleaning gutters in 2019. Broke his back. Not paralyzed thank god but couldn’t work for eight months. Eight months without income because he was a contractor and had no disability coverage.

They burned through savings. Took on credit card debt. Almost lost their house. All because of an accident that took ten seconds.

Everyone talks about life insurance. What if you die. Nobody talks about disability insurance. What if you can’t work. And statistically you’re WAY more likely to be disabled than to die during your working years.

According to the Social Security Administration more than 1 in 4 twenty-year-olds will become disabled before reaching retirement age. One in four. Those aren’t small odds.

What disability insurance does

Replaces part of your income if you can’t work due to illness or injury. That’s it. You get hurt or sick, can’t do your job, insurance sends you money every month until you can work again (or until the benefit period ends).

Typically covers 50-70% of your pre-disability income. Not 100% because they want you to have incentive to go back to work eventually.

Short-term disability

Covers you for short period—usually 3-6 months. Kicks in quickly, sometimes within a week or two of becoming disabled.

Good for temporary stuff. Broken leg, surgery recovery, pregnancy/childbirth (this is actually how a lot of people use it), illness that sidelines you for a few months.

Often offered through employers. Relatively cheap because it only covers short period. If you have it through work check what the waiting period is—how long before benefits start after you can’t work.

Long-term disability

Kicks in after short-term runs out. Covers you for years—sometimes until retirement age. Has longer waiting period, usually 90 days to 6 months before benefits start.

This is the important one honestly. Most people could survive a few months without income by dipping into savings or whatever. But two years? Five years? The rest of your career? That destroys people financially.

Long-term disability is what saves you from losing everything if you get cancer or have a serious accident or develop a chronic condition that prevents you from working.

Own-occupation vs any-occupation

This matters a lot. Read carefully.

“Own-occupation” coverage pays if you can’t do YOUR specific job. Surgeon who loses fine motor control can’t do surgery anymore—gets benefits even if they could technically work as a consultant or teacher.

“Any-occupation” coverage only pays if you can’t do ANY job you’re qualified for. That surgeon with shaky hands? Insurance might say “you can still work a desk job, no benefits for you.”

Own-occupation is obviously better but costs more. Many policies start as own-occupation then switch to any-occupation after 2-5 years.

If you have specialized skills or high income in specific field, own-occupation is worth the extra cost.

Employer vs individual policies

Many people have short-term and/or long-term disability through work. Check your benefits package.

Problem with employer coverage: if you leave job you lose coverage. And you might not be able to get individual coverage later if your health has changed.

Also employer-paid disability benefits are taxable income. Individual policy benefits you pay for yourself are tax-free. So $4,000/month from employer-paid policy might only be $3,000 after taxes. Same $4,000 from individual policy is full $4,000.

Consider supplementing employer coverage with individual policy, especially if employer only covers 50% of income or has any-occupation definition.

Social Security disability

SSDI exists but don’t count on it. Definition of disability is VERY strict—basically you have to be unable to do ANY work at all. Application process takes months or years. Most initial applications are denied.

Average SSDI benefit is around $1,500/month. Not nothing but probably not enough to live on.

Private disability insurance fills the gap.

My coworker’s husband now

They recovered eventually. Paid off the debt. But she told me it was the most stressful period of their lives and they were always one month away from disaster.

Now he has disability insurance through her employer plan plus they bought a small individual policy. “Never again,” she said.

Liability keeps pecking at my window which is annoying but the point is—disability insurance is boring and nobody wants to think about getting hurt. But it’s probably more important than life insurance for most people. You’re more likely to need it. And without it, an accident or illness doesn’t just affect your health, it destroys your finances too.