Short Term Disability Insurance and Benefits Completely Explained, Part 1

(Note: the following is geared towards the State of California. Your state will likely have something very similar, but be sure to check your state regulations and your policy's terms and conditions.)

As readers of my blog and website, most people know that I like to keep things light and fun. Unfortunately, the subject doesn't really have a light side and it's certainly not fun. I mean who really wants to talk about getting injured, right? So I apologize to this article is a little bit dry and boring, but I think that you'll find it very informative.

What is short term disability coverage?

Short term disability coverage provides income replacement to people who experience income loss due to a disability caused by injury or sickness. Most short term coverage lasts for six months, although it can last up to one year. Short term disability coverage is for non-work related illness or injury. Work related illness or injury would be covered by your state's workers comp coverage although you might want to consider adding supplemental insurance to this since it may not cover enough of your expenses when you are on disability.

There are two ways you can obtain short term disability coverage: either through a group or individual plan. Your employer, a professional group or association, or fraternal Association can offer group coverage, and if they do offer it, they must offer it to everyone. They may not exclude any employee or member from purchasing a policy. However, these groups and associations must be formed for a purpose other than purchasing insurance. As an individual, you can purchase short term insurance from either an insurance broker or insurance agent based upon your medical history.

How does one become eligible for short term disability insurance?

Before you can become eligible to receive short term group disability benefits from your employer, you must have worked there for a certain amount of time. This period of time, which is normally 30 to 90 days, is referred to as "service wait." If you sign up for short term group disability insurance from a professional group or association, there will also be a set period of time that you will have to be a member before you will be able to receive benefits. Individual policies generally do not have a set amount of time before you become eligible to receive benefits. However, most insurance companies will take two to three weeks to process your application and you will not be ensured until the process is completed, which is otherwise known as the activation date. Furthermore, if you had had medical treatment for a potentially disabling medical condition during the past 10 years (considered to be a pre-existing condition), you most likely will not be able to purchase individual, short term disability insurance. This includes doctors consultations and medication for certain conditions.

If you sign-up for short term disability insurance through your employer, there will be an active work requirement that you will have to meet in order to be eligible for benefits. With regards to professional groups are associations, you will have to have been part of their group for specific time before you can receive benefits from the plan. Whether you receive your insurance from your employer or a group, each one is significantly different and will have different requirements. So be sure to check the summary plan of your policy for further details.

How much do I get paid if I cannot work due to injury or sickness?

Every short term coverage package is different. When you're disabled, some will pay either a percentage of your gross pre-disability income or a specific dollar amount based on the number of days that you are unable to work. Be sure to check your plan details because all plans are different. Most short term disability plans only pay 55% to 70% of your pre-disability income. Therefore, if you know that you cannot live off this amount, you should seriously consider purchasing supplemental income from a company such as Aflac.

One extremely important point to keep in mind is that if you suffer from a pre-existing condition, the best time to enroll in short term disability insurance is during the initial enrollment period. Why is this the best time? Because your medical history is not subject to medical underwriting; the insurance policy is being issued to the group instead of just an individual. If you don't sign up during the initial enrollment period, your pre-existing condition may limit or delay the use of coverage. Simply put, enrolling during the initial enrollment period qualifies you for every potential disability. This is one aspect of insurance where timing is everything.

A few times now we have mentioned pre-existing conditions. So what are pre-existing conditions? Well, a pre-existing condition is any medical condition for which “medical care” was received three to six months prior to the effective date for coverage. Just about every short term insurance plan has pre-existing conditions exclusionary periods. Until the pre-existing exclusionary period ends, the prior medical condition will not be covered by the policy but as soon as the period ends, it will be covered.

You must enroll during the initial enrollment to meet the pre-existing conditions exclusionary period for short term disability coverage (which can last between six and 12 months.) Then you must continue to be an employee (or member of a professional group or association) and continuously remain enrolled in coverage during the service wait and pre-existing conditions exclusionary period. Upon the passing of the exclusionary period, you will then be covered for any pre-existing disability. Essentially this is to protect employers from hiring previously injured employees, having those employees then claim that they were injured again and have the employer pay out benefits.

Does short term disability insurance cover health coverage?

Many people think that disability insurance covers health coverage. This is not true, as it only provides income replacement, although as this money is paid to you directly, you may use it for health expenses. However, in employer-sponsored coverage, your employer may use your eligibility for short term group disability to determine continued eligibility for other benefits such as health and life coverage. Basically what this means is that if you suffer from a short term disability that would severely affect your future health, they may choose to raise your health benefit premiums.

Short Term Disability Insurance and Benefits Completely Explained, Part 2

Click here for California state disability details

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