Short-term disability insurance can be valuable to fill income gaps and cover expenses if you can't temporarily earn employment income. 

The unexpected often happens in life, including not being able to work after an accident-related injury or an unforeseen illness. That’s where short-term disability insurance comes in.

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Key Takeaways

  • Short-term disability insurance helps you get a percentage of your salary if you become temporarily disabled.
  • You can stay afloat of your bills with a short-term disability policy that provides you 60-70% of what you were making before you became disabled.
  • To qualify for short-term disability insurance, you should have purchased the policy before you’re diagnosed with a condition that makes you eligible for coverage.
  • Short-term disability benefits are taxable, and employers receive a tax break when they pay in lieu of their employees.

What is short-term disability insurance?

Short-term disability insurance pays a percentage of your salary if you become temporarily disabled, meaning that you can’t work for a short period due to sickness or injury (excluding on-the-job injuries, which workers’ compensation insurance covers). 

A typical short-term disability insurance policy provides you with 60% to 70% of your pre-disability base salary.

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.

Short-term disability insurance is often part of an employer's benefits package. Individual short-term coverage is also available, but it's not nearly as common as group-based coverage. 

However, some states have their own short-term disability benefits programs, including California, Hawaii, New Jersey, New York and Rhode Island.

What qualifies for short-term disability?

A short-term disability can prevent you from working for several weeks or months. This disability must be diagnosed by a healthcare provider and can include conditions, such as:

  • Pregnancy
  • Pregnancy complications
  • Digestive disorders
  • Back and joint disorders
  • A non-work-related injury
  • Recovery after surgery 
  • A short-term illness

Some policies’ coverage may exclude certain conditions, such as mental illness and drug addiction. Intentionally self-inflicted injuries, injuries that occurred in the act of committing a crime and driving under the influence also generally disqualify you from coverage.

Ty Stewart, CEO and president of Simple Life Insure, an independent brokerage firm based in San Diego, says some chronic conditions also may prevent you from qualifying for a policy.

"Preexisting conditions that force you to stop working, such as certain kinds of cancer, arthritis, and multiple sclerosis, are prime examples that may make you ineligible for coverage, or at least limit your benefits," he says.

How does short-term disability insurance work?

Colleen Corrigan, a health & life insurance agent with Wallace & Turner Insurance, an independent insurance agency based in Springfield, OH, says disability insurance is a key part of a family’s financial planning.

"The purpose of disability coverage is to financially protect yourself and family when illness or injury occurs. Short-term disability coverage is a great idea for a young, growing family where the concern is replacing income in the event of maternity leave, illness or injury not related to a worksite accident."

Generally, to be eligible for short-term disability insurance, you must have a policy before you’re diagnosed with a condition that would actually qualify you for coverage. For example, you typically can't get short-term disability benefits to cover maternity leave if you’re already pregnant.

In most states, you must have worked for at least 30 days out of the last six months before you're eligible for benefits. You also must provide medical records to confirm your condition. 

Corrigan adds that short-term policies also come with exclusion periods. An exclusion period is the waiting period before you can begin to receive benefits after becoming eligible for a short-term disability claim.

"Typically, a benefit begins after 0, 7 or 14 days of being declared unable to work. Make sure your family is prepared to cover household expenses for those exclusion periods," she says.

There's also a cap on the amount of benefits you can receive and a time limit on benefits. These vary by state. 

Short-term disability coverage not through an employer

While most people can get short-term disability through their employer, self-employed individuals or part-time workers will have to shop the market for an individual plan.

If you're in this situation, you can work with an independent insurance agent to find coverage or use an online insurance broker to compare plans and prices. Some industry associations may offer group plans, which can be much more affordable than getting individual coverage. 

For example, the Freelancers Union, a non-profit organization that serves independent contractors in various industries, gives its 490,000 members the opportunity to apply for disability coverage through Guardian Life.

Stewart says because short-term policies often end up being less effective than long-term disability policies that can last for years, it's often best to get employer-based coverage, if possible.

"Given that cost breakdown across the years, short-term policies tend to work best when they're part of your employer's offered benefits. Group short-term disability's premiums will be somewhat cheaper compared to what you'd pay if you found one individually, though you do sacrifice a little choice and policy individualization," he says.

Does short-term disability insurance cover pregnancies? 

Short-term disability insurance typically covers you for pregnancy and childbirth if you buy the policy before you’re pregnant. A policy likely won’t cover a pregnancy if you try to buy it while pregnant. 

A short-term disability policy will often pay you for six weeks after a normal delivery and eight weeks for a C-section or twins and triplets. You may be able to get a longer benefit period for a pregnancy with complications. You could also start collecting while still pregnant depending on the policy. 

Read the policy’s fine print and ask the company if you have any questions about the benefit period. 

Is short-term disability taxable?

Whether short-term disability is taxable depends on who pays the premiums. Corrigan says it also depends on whether someone pays premiums on a pre-tax or post-tax basis.

"Short-term disability benefits are taxable if your employer pays the premiums. Employers receive a tax break when they pay on behalf of employees. It is a deductible business expense," she says.

If an employee pays, short-term disability benefits may or may not be taxable depending on whether the employee chooses to make either pre- or post-tax payroll elections, Corrigan says. 

If the elections are pre-tax, the employee will have to pay taxes on these benefits. However, if they pay premiums with after-tax dollars, employees don't have to pay taxes on the disability income they receive.

How to file a short-term disability claim

You can generally submit a claim as soon as seven days after you've stopped working. To file for short-term disability benefits, you'll need to access your insurer's claim form. You can obtain this form online from your insurer's website or through your HR department if you have employer-based coverage.

Complete the entire form and have your employer fill out the relevant sections or provide a statement, if necessary. You'll need to provide information such as:

  • The date you stopped working
  • Details on your medical condition or injury
  • When it occurred or was diagnosed 
  • Personal and contact information

Your doctor or healthcare provider also will need to sign a form confirming your condition, and you'll need to sign a form to authorize the release of your medical records.

Once you've compiled all this information, you can submit the form by mail, online, or in some cases, by phone. 

After receiving your claim form, some insurers may request additional information to make an eligibility determination. Most insurers try to quickly make claims decisions -- typically within one week of when they receive all your relevant documents. However, not having all your paperwork in order can delay the process, so it's important that you contact your healthcare provider right away to complete and submit the physician's statement insurers require and provide any other documentation your insurer asks for promptly.

How to apply for short-term disability insurance

Several insurers offer short-term disability coverage, including:

Corrigan says when shopping for a policy, it's essential to read the fine print and consider your financial situation carefully.

"It is imperative an individual or family review any exclusions or preexisting condition clauses of a policy when comparing policy options," she says. "Remember that prices are related to the amount of disability income. When shopping, look at your current expenses and project future expenses to make sure you apply for the appropriate dollar amount."

While short-term disability can provide much-needed income over several weeks or months, Stewart says some people may be better served by long-term coverage.

"You must consider the importance of you as a breadwinner. If your income is the sole source of money in the household, then getting comprehensive coverage that lasts longer is in your best interests," he says. "It just means peace of mind that you'll have income across the years, not just a few months."