Among the many benefits of employment at large companies, a short-term disability policy is not the least valuable. The benefits offered by such an insurance policy are not available everywhere in equal fashion, since most states do not mandate coverage and not every employer offers the same sort of coverage plan. These policies are specially crafted to cover those sorts of mishaps and ailments that will require more time for recovery than the typical employee’s sick days or vacation time can provide. Yet these same conditions do not merit or qualify for the benefits provided by long term disability insurance.
What Is A Short-Term Disability?
Most employees with large organizations or government agencies are familiar with the long-term disability insurance. These institutions usually provide such policies to cover severe injuries or grave illnesses that might prevent their employees from working for extended periods of time. However, such policies only apply to catastrophic situations, such as spine injuries or a diagnosis with a life-threatening disease. Other ailments are expected to be covered by an employee’s sick days.
However, experience has taught all involved that accidents and infections can also cause employees to need more time off for recovery than their accumulated sick days can cover. Examples of such ailments are a diagnosis with mononucleosis or the combined injuries suffered in a car accident that do not amount to the severity of a spine or brain injury but are also worse than a simple broken leg. Long-term disability insurance generally does not apply to these sorts of problems, but they clearly require more time for recovery than the average employee accumulates in sick days or vacation time.
How Can A Short Term Disability Policy Help?
This kind of insurance was developed to do some of the same things that long-term disability insurance does for people who have suffered more severe injuries. It provides income during the time of recovery so that the employee does not need to add impoverishment to his or her list of worries during a difficult time in life. When these policies are in effect, the employee also does not have to worry about losing his or her job while recovering from illness or injury.
Each insurance company handles these situations differently and each state has different requirements for carriers who provide such coverage. In some states there is little or no regulation of these policies while some states require employers to offer a certain amount of short-term coverage. Most short-term policies will initiate at some pre-determined point after revelation of a condition meriting the coverage and continue for at least 12 weeks. Some go for as long as 26 weeks. Usually a company will tailor its coverage to dovetail with sick days at one end and the beginning of long-term coverage at the end.
The amount of income received is also variable but many companies go with a changing rate. Plans often begin with payments that are equivalent to somewhere between 70% and 100% of the employee’s usual salary. After a period of weeks, this amount may be reduced to something lower than 50%.
Paying for a Short Term Disability Policy
There are three ways to pay for this kind of insurance. Each of those methods of payment has an effect on total income and on taxation. The method of payment is usually not up to the employee.
- If the employer pays, then the employee will not know anything about the premiums involved and may not have much input if any regarding the level of coverage. Some employers simply prefer to cover their employees in this straightforward fashion. Group rates can save them quite a bit on premiums per employee as well. However, when an employee begins to receive benefits due to a qualifying condition, that income will be taxed.
- If the employee pays the premium from each paycheck, he or she should look at how this payment is handled regarding taxation. If the premium payments are removed prior to taxes, then those taxes will have to be paid when the employee receives benefits upon qualifying for benefits. However, avoiding the taxation at this juncture does lower the taxable income in each paycheck.
- Some plans take the premiums after taxes have been removed from the employee’s salary. This is a more painful option but it has one advantage. When the employee receives benefits he or she does so tax-free. This is an attractive option for many employees.
Qualifying for Activation of Coverage
Qualifying for benefits will require the employee to provide written substantiation of the condition from a physician or other qualified health care provider. It is very likely that the employer in any case will not activate a short term disability policy until the employee has used up all of his or her sick days and vacation time. There may be an interruption of income while the paperwork is processed but, in these cases, later payments will be calculated to make up any earlier payment gaps. These details are determined by each employer and by the insurance carrier that they use to implement their policies.
