Short-Term vs. Long-Term Disability: A Guide for High-Income Professionals

The average American is woefully unprepared to handle a medical emergency or loss of income. In fact, as of 2024, over one in four Americans do not have any emergency savings, making them vulnerable if a health crisis or accident leaves them unable to work.

You might expect Social Security disability benefits to protect you in the worst-case scenario, but the reality is that qualifying for benefits and the time it takes can be notoriously difficult. The process often takes months, if not years. This is where individual disability can bridge the gap.

But not all disability insurance is the same. 

There are two primary types: short-term and long-term. Understanding the difference between short-term vs. long-term disability insurance is essential for choosing the coverage that best fits your financial needs and lifestyle.

Short-term vs. long-term disability insurance: What’s the difference?

When faced with a disability, knowing how long your income is protected can make all the difference. Short-term and long-term disability insurance both offer financial support, but they vary significantly in duration, waiting periods, and the types of situations they cover.

Related: Short Term vs. Long Term Disability Insurance: Which Is Best for a Crisis?

What is short-term disability insurance?

Short-term disability insurance provides income replacement if you’re unable to work for a shorter period—often due to temporary injuries, illnesses, or conditions like surgery or pregnancy. 

It typically begins paying benefits shortly after a claim is made, sometimes within days or up to a month. Benefits generally last from a few weeks to a year, covering up to 70% of your pretax income to help you stay financially stable during your recovery.

What is long-term disability insurance?

The difference is really in the name. Long-term disability insurance covers more prolonged absences from work due to severe or chronic health conditions that prevent you from working for an extended period. 

Unlike short-term policies, long-term disability has a longer waiting period — usually around 90 days or more — before benefits begin. Coverage can last for years, with options to receive benefits for two years, five years, ten years, or until retirement ages such as 65, 67 or even 70. An effective long-term disability policy typically replaces around 60% of your pretax income if you’re unable to work beyond the elimination period, providing lasting financial support.

What disabilities does each policy cover?

Different types of disability insurance cover different scenarios. Both short-term and long-term disability insurance policies often include an “own-occupation” option for the definitions of disability. This means that the company could consider you totally disabled if you’re unable to perform the duties of your specific job, even if you could work in another capacity. 

Unique coverage areas of short-term vs. long-term disability

Long-term disability policies generally extend coverage to include mental health conditions, such as depression or anxiety, as long as you weren’t diagnosed with the condition before applying for the policy. 

One place where short-term disability shines is pregnancy-related conditions. While most long-term disability policies don’t pay out for typical pregnancy complications, short-term disability can provide income replacement in such cases.

However, timing is important: applying for short-term disability insurance before becoming pregnant is ideal, as later pregnancy stages (e.g., the third trimester) or associated health issues could result in higher premiums.

Is your workplace disability policy short-term or long-term?

Your employer might have a plan for both short and long-term disability that you can buy into. These group policies can be beneficial if they cover every employee of the company without the need for medical underwriting. This means that people who might be uninsurable for a private policy can still get coverage. 

However, there are notable downsides to relying solely on workplace disability plans:

• They are not normally portable. If someone leaves the employer that is providing the plan, that person will not be allowed to take the policy with them. In the worst scenario, they could end up at a new employer who does not provide a group plan, and they no longer qualify for individual coverage because they developed a complicated medical condition that makes them uninsurable. 
• The definitions of disability and the benefit period might not be as strong as an individual plan would be. Employers frequently try to penny-pinch on these policies; they want to be able to say they have a disability plan for employees but may limit the scope of coverage to lower costs. 
• The benefit is taxable income if the employer pays the premium. If the employee ever needs to rely on disability benefits, they’ll pay taxes on the payout. This greatly reduces the amount of benefits they receive in the event of a disability.

A reality check on workplace disability coverage

Employer-sponsored workplace disability policies can also be deceptive in how much they truly cover. Let’s use the example of Maria, a cardiologist who earns $400,000 a year. Her employer has a long-term disability policy in place that covers 60% of pretax income, up to $10,000 a month. The employer pays the premium — the policy is free for all employees. 

Did you catch that? Many people assume this policy will cover 60% of their income, but this one will actually cap at $10,000 per month, or $120,000 a year. Okay, a $10,000 monthly benefit is nothing to sneeze at, but it will be taxable since her employer is the one paying the premiums, reducing the benefit. So, let’s say she now makes $90,000 a year. 

This is catastrophic. She went from a likely take-home pay after taxes of at least $250,000 to $90,000! 

What if she was the primary earner in her household? This would necessitate a huge lifestyle change, especially if the disability is permanent and there are significant medical bills involved as well. 

Relying on a workplace policy exclusively will rarely meet your needs in the worst-case scenario.

Related: Can You Have Two Disability Insurance Policies? Yes – Here’s Why You Should

Who needs short-term disability insurance?

You need short-term disability insurance if you don’t have an emergency fund — and only 44% of Americans have three months of expenses saved. Ideally, you’d have enough set aside to survive six months with no paycheck. If you can do that, you could effectively self-insure and might not need short-term disability insurance.

But if you would struggle without income during a recovery period, a short-term disability policy can provide the support you need.

Who needs long-term disability insurance?

Long-term disability insurance is essential for most people. Think about it: could you manage the rest of your career with no income? 

The average monthly Social Security Disability Insurance (SSDI) payment is about $1,500. In most cities, that’s not even enough to cover monthly rent.

For those with highly specialized careers, you will likely have higher living expenses as well, like a large mortgage, private student loans or school tuition payments for kids. Those costs don’t go away just because you are disabled and unable to work. Disability is responsible for roughly 50% of foreclosures, according to the Council for Disability Awareness. 

If you get to the point where you are financially independent and no longer rely on income, you can choose to cancel your policy at that point. Until then, long-term disability insurance is a vital safeguard.

Choosing a reliable disability insurance provider

When selecting a disability insurance provider, you’ll likely encounter the “Big 5” companies: Guardian, MassMutual, Principal, The Standard and Ameritas. These providers specialize in long-term disability, though many also offer short-term disability and business overhead expense coverage for business owners.

Other options include companies like Northwestern Mutual and Aflac, along with association-specific plans like AVMA Life. An independent insurance agent can give you quotes from multiple companies and help you figure out which provider best meets your needs.

If you’re interested in exploring your options, fill out the quote form below, and I’d be happy to do some research for you!