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The basics of short-term disability insurance

Let's look at an unpleasant job scenario: you become disabled and can't work for two or three months. Would you have enough tucked into your savings to cover all your living expenses during that time? If not, than it might be time to think about buying short-term disability insurance.

Consider that more than one in four people in their 20s will likely become disabled before retiring, according to the Council for Disability Awareness Also, one in eight workers can expect to be disabled for five years or more before retirement.rance, a figure that's been fairly steady for the past few years, according to Northwestern Mutual's 2016 Planning & Progress Study.

With statistics like that, it may be wise to consider buying short-term disability insurance to protect your financial future.

What is short-term disability insurance?

Short-term disability insurance pays a percentage of your salary if you become temporarily disabled, meaning that you are not able to work for a short period of time due to sickness or injury (excluding on-the-job injuries, which are covered by workers compensation insurance). A typical short-term disability insurance policy provides you with 60 to 70 percent of your pre-disability base salary, according to various insurers who sell the policies and America's Health Insurance Plans, a trade group.

The National Association of Insurance Commissioners estimates that these benefits generally last between three and six months. Most short-term disability insurance policies have a "cap," meaning you receive a maximum benefit amount per month. Short-term disability insurance policies also have a limit on the amount of time you can receive benefits -- up to two years, according to the Insurance Information Institute (III).

Causes of short-term disability insurance claims

Here are common reasons for short-term disability claims,:

1. Normal pregnancy

2. Injuries

3. Complications from pregnancy

4. Digestive disorders

5. Back disorders

6. Cancer

The average annual premium in 2014 and 2015 for a new group short-term disability insurance policy was $216 to $239 per person, depending on the insurer providing the coverage. The figures come from Gen Re's 2014 and 2015 U.S. Group Disability Market Survey of 26 insurers, including Aetna, Allstate, MetLife and the Hartford.

Short-term disability insurance, which is most often purchased as part of a group at work, can be paid by either the employer or the employee. Group short-term disability insurance policies are "guaranteed issue," meaning you do not have to take a medical exam to buy coverage.

You can start receiving money from your short-term disability insurance policy after a waiting period, usually no days to 14 days, after becoming sick or disabled, the III says The actual time for coverage to kick in depends on whether you suffer an illness or injury. If you suffer an injury, your benefits will be paid immediately. If you suffer an illness, it may take longer because of the need to show that the illness is grave enough to be disabling.

Here are some examples: say you severely injure yourself by falling off a ladder at your house, then your benefits would kick in immediately. But if you suffer from a serious illness and can't go to work, your insurance may not kick in until eight days after you became ill.

Your employer may have additional restrictions as to when your short-term disability insurance policy goes into effect. For instance, your employer may require you to use all of your sick days before you begin receiving payments from your short-term disability insurance policy.

You also may receive retroactive benefits if you have a condition that worsens over time. Let's say you have a cold and you took three sick days at work. If your cold evolves into pneumonia, hospitalizing you for three weeks and preventing you from performing your job duties, you could receive disability pay retroactive to your first sick day.

The III also points out that the policy can't be canceled by the insurance company, except for nonpayment of premiums. "This gives you the right to renew the policy every year (up to two) without an increase in the premium or a reduction in benefits," the III says.

Long-term disability insurance kicks in after short-term disability expires. Here's more information on long-term disability insurance.

Who should buy short-term disability insurance?

Individual short-term disability insurance policies are available only on a limited basis, if at all. Your best bet is to buy short-term disability insurance coverage through your workplace. Some insurers sell "accident policies" that will pay you money each month for a year if you are injured in an accident.

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