LTD/STD Basics

Long-term disability insurance (LTD) is an insurance policy that protects an employee from loss of income in the event that he or she is unable to work due to illness, injury, or accident for a long period of time.

Some estimates state that the average employee with a long-term disability or illness misses 2.5 years of work. This can devastate a family financially without the safety net provided by a long-term disability insurance policy.

Long-term disability insurance does not provide insurance for work-related accidents or injuries that are covered by workers’ compensation insurance. But, they do cover an employee in the event of a personal accident such as a car accident or a fall.

However, long-term disability insurance ensures that an employee will still receive a percentage of their income if they cannot work due to sickness or a disabling injury. Long-term disability insurance is an important protection for employees when the U.S. Census Bureau estimates that an employee has a one in five chance of becoming disabled.

Employees use the type of benefits supplied by a potential employer as one of the key decision factors that govern their choice of employment. As such, employers who want to become an employer of choice and win the talent war for the best employees will offer a benefits package that attracts and retains employees.

Offering long-term and short-term disability insurance are also ways in which employers can express their regard and respect for the people they employ. No thoughtful, forward-looking employer wants to see their employees devastated by the effects of a long-term serious illness or accident.

Long-term disability insurance is usually provided and paid for by employers, and there are a variety of different plans available for employers to offer as part of a comprehensive employee benefits package. If a company doesn’t offer long-term disability insurance or if an employee wants additional coverage, he or she has the option of purchasing an individual long-term disability plan from an insurance agent.

Most frequently, though, long-term disability insurance is available through the employer; it is expensive to purchase as an individual employee. Consequentially, some employers, if they do not provide long-term disability insurance will develop a relationship with a long-term disability insurance company to create an employee discount for their staff who choose to purchase a long-term disability policy.

Long-term disability insurance is also often available through an employee’s professional associations at a discounted rate.

Long-term disability insurance, provided by an employer, may be inadequate to meet a disabled employee’s needs. This is the second reason employees might want to consider purchasing supplemental long-term disability insurance.

Additionally, payments to the employee from their employer’s long-term disability insurance are taxable income whereas payments from an employee purchased plan are usually not.

Long-term disability insurance (LTD) begins to assist the employee when short-term disability insurance (STD) benefits end. Once the employee’s short-term disability insurance benefits expire (generally after three to six months), the long-term disability insurance pays an employee a percentage of their salary, typically 50-70 percent.

Long-term disability payments to the employee, in some policies, have a defined period of time, for example, two-ten years. Others pay an employee until he or she is 65 years old; this is the preferred long-term disability policy.

Each long-term disability insurance policy has different conditions for payout, diseases or pre-existing conditions that may be excluded, and various other conditions that make the policy more or less useful to an employee.

Some policies, for example, will pay disability benefits if the employee is unable to work in his or her current profession; others expect that the employee will take any job that the employee is capable of doing—that’s a big difference and consequential.

Long-term disability insurance is an important component of a comprehensive employee benefits package. In fact, according to experts, long-term disability insurance coverage is as important to an employee as life insurance.

Employees are responsible for examining their employer’s policy to ensure that it meets their needs. If not, employees are responsible for purchasing their own expanded coverage which may be available at a somewhat reduced rate through their employer’s insurance carrier.

You know your health history, your ancestry, and your family’s history of diseases. Keep all of this in mind when you look at the amount of long-term disability insurance that you need to carry. Further, if you stay in touch by visiting your doctor regularly, you can often determine what’s going on with any health issues before they require you to use long-term disability funds.

Short-term disability insurance is an insurance policy that protects an employee from loss of income in the case that he or she is temporarily unable to work due to illness, injury, or accident.

Short-term disability insurance does not protect against work-related accidents or injuries, as noted above, because these would be covered by workers’ compensation insurance.

However, short-term disability insurance ensures that an employee will still receive a percentage of income if they cannot work due to sickness or a disabling injury. This is an important protection for employees.

Just like long-term disability insurance, short-term disability insurance is usually provided by employers for the same reasons—to demonstrate the care and respect of the employer and to attract and retain talent. A variety of different plans are available for employers to offer their employees. Employees can provide group insurance packages as part of a benefits package.

If a company doesn’t offer short-term disability insurance or if an employee wants additional coverage, he or she has the option of purchasing an individual plan from an insurance agent. Most commonly, though, the insurance is available through the employer.

Most short-term disability insurance plans include certain specifications regarding the employee’s eligibility to receive benefits. For example, some plans indicate a minimum service requirement or the minimum length of time that a worker must have been employed for, and may require that the employee works full-time or has worked consecutively for a certain period of time.

In addition to these requirements, some employers specify that an employee must use all of their sick days before becoming eligible for short-term disability benefits. Employers may also require a doctor’s note to verify an employee’s affliction, commonly including illnesses such as arthritis or back pain, cancer, diabetes, or other non-work related injuries.

Short-term disability insurance benefits vary by plan. Typically, a package offers about 64 percent (usual range: 50-70 percent) of an employee’s pre-disability salary, as evident in the Bureau of Labor Statistics–Fixed Percent of Earning analysis.

Short-term disability insurance plans may provide benefits for as few as ten weeks, but most commonly provide benefits for 26 weeks, according to the Bureau of Labor Statistics–Duration of Benefits. However, short-term disability insurance plans vary by company, and the amount of the benefits received, may also vary based on an employee’s position or the amount of time he or she has worked for the employer.

Following the expiration of insurance benefits, many employers offer their employees access to the benefits available from a long-term disability insurance provision.

Short-term disability insurance is an appreciated employee benefit for employees and their family members. Short-term disability insurance provides a welcome financial cushion, a safety net, in the event of an employee’s short-term disability.

Disclaimer: Please note that the information provided, while authoritative, is not guaranteed for accuracy and legality. The site is read by a world-wide audience and ​employment laws and regulations vary from state to state and country to country. Please seek legal assistance, or assistance from State, Federal, or International governmental resources, to make certain your legal interpretation and decisions are correct for your location. This information is for guidance, ideas, and assistance.