What is Short Term Disability Income Insurance and Who Needs It?

Short-term disability insurance generally is an employer-sponsored group plan. It pays a specified percentage of disabled employees’ salaries for a specified amount of time if they become ill or injured and cannot perform the duties of their job. Benefit payments usually commence anywhere from one to fourteen days after employees suffer a condition that leaves them unable to work. Many times, the plan requires employees to use up sick days before short-term disability kicks in, if they have an illness that keeps them out of work for an extended period of time. This provision is why the plan usually has a different policy for short-term disability caused by sickness versus injury.

Sometimes the employer pays the premiums, sometimes employees pay the premiums, and sometimes the employer and the employees split the cost of premiums for a short-term disability policy. More often, though, short-term disability coverage is employer-paid. Companies do have a choice of having employees pay in whole or in part for coverage, with certain tax implications.

Basically, group coverage for short-term disability can be attained in two ways:

  • Contract agreement through an insurer that covers disability.
  • Through a self-funded plan set aside by the employer directly.

Employers can create a policy dictating that employees must use up sick days before going on short-term disability for an extended illness. They frequently also require documentation from a doctor to prove an illness or injury.

Different short-term disability plans dictate different terms for qualifications. The main terms are listed below:

  • Employees need to work for the employer for a certain amount of time before coverage kicks in.
  • Employees need to work full time or near full time, usually thirty hours or more per week.

The following features are part of what a short-term disability plan benefits package may include:

  • Percentage of weekly salary paid out (typically between 50 and 70 percent of weekly salary).
  • Duration of short-term disability benefits (typically between ten and twenty-six weeks).
  • Maximum amount of time covered under this disability program.

While most states do not require employers to provide short-term disability benefits, some states, such as Hawaii, New Jersey, New York, and Rhode Island mandate that companies above a certain size (in employment) provide short-term disability benefits for up to twenty-six weeks.

Reproduced with permission.  Copyright The National Underwriter Co. Division of ALM

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