Short-Term Disability Insurance Is a Waste of Money… With Two Very Specific Exceptions

In honor of Disability Pride Month, we’re coming to you with our hot and sweaty take on short-term disability insurance. We’re going to explain what it is, how it works, and why you probably don’t need it… unless, of course, you’re in two very specific situations. Ooooh, look at me go, building that mystery!

No disability-related topic can ever be simple. But we’ll do our best to make the pros and cons of short-term disability insurance super clear! And since we’re generally not enthusiastic about it, we’ll explain some of your (many) other, better options.

Fun fact: the insurance industry abbreviates short-term disability insurance as “STD.” Unlike my biblical ancestress, I swear to resist the temptation of a low-hanging fruit.

What is short-term disability insurance?

Short-term disability insurance is an income insurance benefit you might get from your employer, your state, or a private insurance company. If you become too ill or injured to work, and your condition is covered, the insurance company will pay you a portion of your paycheck while you’re laid up.

Each policy is different. To give you an idea of what’s normal, an okay short-term disability insurance plan might pay out 50-60% of your former paycheck for a maximum period of 3-6 months. The most generous policy I’ve seen reimburses a full 100% of paychecks for 12 months. Some have a hard upper limit across all policies; I’ve seen $750 and $1,000 per week.

The only thing short-term disability insurance protects is your current income. Not your job, nor your future earnings, nor the actual health of your body. Understanding this is crucial to evaluating its worth.

What are the pros and cons of short-term disability insurance?

We’ve talked about how hard it is to provide easy personal finance solutions to people with disabilities, because every disability is so different. And the exact same problem arises when we talk about insurance.

Every insurance policy is different. What it covers, what it pays out, when it kicks in, how quickly you get your money, how easy it is to make claims and appeals… there is no standard! Mentally add qualifiers like “usually, typically, can, may” to everything on the following list.

We can only talk in generalities. That makes our job difficult.

Insurance companies market their pros and bury their cons deep in the fine print. That makes your job difficult.

Pro: You’re considered disabled if you can’t do YOUR job

There are two ways an insurance policy gauges a person’s inability to work.

• “Own occupation” policies consider you disabled if you can’t do your current job.
• “Any occupation” policies only consider you disabled if you can’t do any job.

Let’s say your job requires you to move heavy items all the time. But you’ve injured your back and your doctor recommends you stop lifting heavy things. An “own occupation” policy will consider you disabled, because it’s insuring your ability to do your current job and earn your current paycheck. But an “any occupation” policy would probably reject that claim, because there are many jobs in the world that don’t require heavy lifting. And technically, you could go get one of those jobs instead.

Most short-term disability insurance policies are “own occupation” policies, which are far more reasonable. Because it doesn’t feel fair or realistic to expect someone to up and change careers on a dime just because they got sick or injured.

Pro: You don’t have to be out long for it to kick in

A cut on the hand… a bout of food poisoning—short-term afflictions like these can impede our ability to work for a day or two. But obviously they’re not considered disabilities. So how long does it take for an injury or illness to cross the threshold into short-term disability?

Disability insurance policies call this an elimination period (AKA “qualifying period” or “waiting period”). And for short-term disability insurance, 1-2 weeks is standard. That’s very short, considering long-term disability policies may have an elimination period as long as six months.

IMPORTANT SIDE NOTE: This is one of MANY reasons not to work when you feel sick. Most disability insurance policies say your elimination period starts on the first day you can’t work—NOT the first day you felt symptomatic. That distinction can have huge consequences for you later on.

I know someone who was being treated for cancer and reacting badly to her chemotherapy. She pushed through and worked from home. Although she was too sick to work effectively, her coworkers kindly covered for her. But when she became disabled because of chemo-induced neuropathy, her disability insurance claim was denied. The insurance company argued that her attendance record proved she hadn’t become disabled until much later. She missed out on a lifetime of disability payments because she didn’t call in sick when she felt sick. Please don’t make the same mistake.

Pro: You get your money pretty quickly

Because that elimination period is so short, you won’t have to wait long to get your money. Most approved claims will begin paying out within a few weeks. If your cashflow situation is tight like a tiger, it’s a nice assurance.

Of course, that’s assuming your claim is accepted. We’ll get to that!

Con: It does nothing to guarantee you’ll keep your job (or your health insurance)

Enough positivity! Time to talk trash.

When you’re sick or injured in America, I expect there’s two things at the top of your mind.

• “How do I keep my job so I still have money coming in?”
• “How do I keep my job so I still have health insurance?”

This is where short-term disability starts to do whatever the opposite of “shine” is. (Dull? Mattefy??)

Short-term disability insurance doesn’t do shit to protect your job. If you work for a bigger company, a reasonable request for leave may be protected under the ADA. But that STD is essentially a private arrangement between you and an insurance company—NOT your employer. It’s often legal for your employer to terminate you while you’re on short-term disability leave. Losing your job will greatly ramp up the pressure on you when you can least afford it.

Cons: Many potential health issues will not be covered

Obamacare dealt a massive blow to health insurance companies when it killed off many of the industry’s evil “preexisting condition” clauses. But like Palpatine, somehow they returned—this time, within disability insurance.

You can be charged more for short-term disability insurance if you have preexisting conditions. And your claim will be denied if you had that condition prior to getting the insurance.

When you file a claim, insurance companies get a “look back period.” It means they can sniff through your medical records for evidence that you already had your condition. Let’s say you want paid disability leave to treat your depression. If your insurance company finds a line in your doctor’s notes about feeling depressed before you got the policy, they may refuse to pay up.

Pregnancy, elective procedures, self-inflicted injuries, and in-debate diagnoses are also typically not covered. (There are some notable exceptions we’ll discuss more later.)

They’ll also reject any claims for illnesses or injuries incurred at work. You need to make a worker’s compensation claim for those instead. (Again, more on that below!)

Cons: Claims are frequently denied, and appeals processes can be arduous

In preparation for this article, I read a lot of stories from people who filed short-term disability insurance claims. I was dismayed but not surprised to see just how many people experience claim rejections.

As this ProPublica report explains, the claims rejection process is so murky it could easily be mistaken for a Rainbow Brite villain. On average, 20% of claims are rejected. But it’s often wildly erratic. One company rejected 66% of claims in one year, and 7% the next. And the sole arbiter of the claim is, of course, the insurance company itself. You know: the entity that has vast resources and a compelling financial interest in denying those claims?

HI, I DON’T LIKE THIS.

Alas, that is the way the system works today. They can reject your claim on obscure technicalities, like waiting too long to submit your claim or failing to perfectly adhere to your treatment plan. You can appeal, and you should. But winning takes work, and it’ll add months onto your timeline for getting repaid.

Sound off in the comments if you want more regulatory transparency.

Also sound off in the comments if want more Murky & Lurky references.

Cons: You won’t get your full paycheck

As we mentioned above, 100% repayment plans do exist. But they’re much less common and much more expensive than partial repayment plans. Others repay as little as 40% of your average paycheck. Most lie somewhere in the middle.

Readers of Bitches Get Riches are probably more conservative with their personal finances than most. (I’m sorry I called you “conservative” in any context, my darling socialist INTJ librarian core constituents. It won’t happen again, I swear.) You guys are more prepared to handle a serious financial emergency than most Americans.

But if my household’s income dropped by 60%, I would not be okay.

This is especially true for people who earn unpredictable income. Payments are usually based on “average income.” If you’re a server in a tourist town, you might make most of your money in the summer; if you get sick in the winter when your “average” paycheck is tiny, you’d be screwed.

In these times of greed and inequality, so many people live paycheck to paycheck. They may get a false peace of mind because they know they have something called “short-term disability insurance.” If they understood that all it promised was a slim percentage of their normal income over a few short months, and only in narrow circumstances, I think they’d rightly feel betrayed.

Cons: Short-term disability insurance is expensive relative to alternatives

Short-term disability policies generally cost 1-3% of your yearly salary. The cost scales to your age, health, income, occupation, and state. And it may be much more expensive if you have a preexisting condition or work in a labor-intensive field where injuries and accidents are more likely.

The average American income is around $60,000, meaning STD would cost $600 to $1,800. I ran a lot of quotes using my own data (RIP to my inbox, it died for your sins), and they ran from $119 to $198 per month.

Uh… that’s pretty fucking expensive!

Alternatives to short-term disability insurance

From my vantage point, I see several better options.

Alternative #1: Long-term disability insurance (LTD)

If you have the money for it, and you want true protection against the dangers of potential disability, long-term disability insurance makes a lot more sense than its short-term cousin.

We’ll be releasing a separate explainer on long-term disability insurance soon! For now, suffice to say it costs a similar amount but offers much more comprehensive coverage. If you can only have one, long-term is the better choice for the vast majority of people.

Alternative #2: Worker’s compensation (worker’s comp)

If you became sick, injured, or disabled for work-related reasons, worker’s compensation insurance will help. And overall, it’s light years better than STD.

It provides coverage for more tangible benefits. Besides restoring lost income, it can also reimburse medical expenses, rehabilitation costs, and even job retraining. Because it’s mandated, your employer is more likely to carry this insurance. Decisions are made by a worker’s compensation judge, a more impartial party than a private insurance claims adjuster.

Every state has their own odd variations on worker’s comp regulations, so you need to do a bit of research. But if your disability is in any way related to your profession, worker’s compensation is almost certainly the wiser avenue to pursue.

Alternative #3: Family Medical Leave (FMLA)

The Family Medical Leave Act (FMLA) is a federal law that requires many businesses to allow people to take time off without losing their jobs. Coverage extends to a maximum of 3 months, which is on-par with many STD plans.

FMLA is unpaid leave. No paychecks for you, partial or otherwise. Cue sad trombone.

Despite that, we think it may often be the better option. Critically, it protects your job and your health insurance when you really need it. Because it can be used for yourself or for a closely related loved one, it’s more flexible. You don’t have to enroll, and it doesn’t cost you anything.

Federal law requires FMLA for every company with more than 50 employees. (There are a few more nuances—but that’s the major one.) It’s free, widely available, flexible, and backed by the girthy authority of The Feds. All those factors make it a pretty great replacement in our book.

And more!

These aren’t your only options.

• You could work with your employer to reach an understanding. We love to rag on businesses and corporations—but they are run by people. And a few of those people don’t suck! I know a lot of folks whose managers have allowed a creative use of paid time off, unpaid time off, or temporary status changes like dropping down to part-time or working remotely at your own pace.
• If you live in California, Hawaii, New Jersey, New York, or Rhode Island, you have access to a state-run temporary disability program.
• Several states also mandate paid medical leave for qualifying workers. These include California, Colorado, Connecticut, Hawaii, Maryland, Massachusetts, New Jersey, New York, Oregon, Rhode Island, and Washington state.
• If you could be disabled for more than 12 months, you can file for Social Security Disability Insurance (SSDI, often called just “Disability”).
• You can “self-insure” by using the money you would’ve spent on STD premiums to grow your emergency fund, become debt-free, or invest in easily liquidated non-retirement accounts. If you want to pursue this option, this guide is a great starting point.

And remember that state-level legislation changes all the time. So even if your state isn’t in our list, Google it.

Given these options, we think short-term disability insurance just doesn’t make sense for most of our readers. I’m sure we’ll get a few competing perspectives in the comments—and in fact, we look forward to it!

Would anyone benefit from short-term disability insurance?

There are two compelling cases in which short-term disability insurance seems like a good idea. Let’s discuss them!

First, get it if you’re planning to become temporarily disabled a year or two down the road. This may seem like a wild statement. But there are lots of medical procedures that won’t show up in your record, aren’t urgently time-sensitive, and can be planned out in advance.

A few years ago, my partner needed surgery on his right hip. His doctor mentioned that most patients who needed it in one hip eventually needed it in the other as well. His workplace offers unlimited PTO (bougie), so it wasn’t an issue. But if they hadn’t, he probably could’ve signed up for STD, waited a year, then reported pain on the left hip and collected insurance while he went through the planned surgery and recuperation period.

There are lots of conditions with very expensive treatments that fit this description.

The first that comes to mind is pregnancy. 40% of all short-term disability insurance claims are for pregnancy. Not all policies consider pregnancy a qualifying “disability”—but some do. (Mommy boards are hot on Aflac as long as you have a 10-month lead time, FWIW.) Others only kick in if the pregnancy manifests other illnesses—like preeclampsia or c-section recovery—that limit your ability to work.

Gender affirming surgery is another example. Some folks have used it to cover recuperation time after planned procedures like top surgery. Wait times for these specialists can be as long or longer than the probationary period of your insurance plan, so you might as well double-dip.

If you have a condition like this, don’t feel bad being strategic for even a second. I promise you, these companies make strategic choices every day to minimize their taxes and maximize their profits. You should do the same.

Second, it’s always worth it if it’s free (or nearly free) because your employer or state subsidizes it. Affordability is the most delicious of all spices. Take it from us, the crones lingering by the catering table, not-so-discreetly shoving bagels into our purses “for later.”

Your to-do list

Today, I recommend taking the following simple steps to improve your general emergency preparedness.

• Check the worker’s comp laws in your state. You can do that here.
• Find out if your role is eligible for FMLA. You can do that here.
• If your workplace or state offers a policy, actually read its documentation. That’s right—with your eyes. It’s gonna be soooo fucking boring. (Put on Jurassic Park 3 in the background? Or the good cut of Alien 3? It’s a third-movie-in-a-trilogy kind of task.) But you should understand what it does and doesn’t offer so you won’t have a false sense of security. If it doesn’t meet your needs and it’s costing you money, consider dropping it in favor of a better and/or cheaper alternative.
• If you have a known condition, find your people. Find a place to gather: a forum, support group, subreddit, Facebook group, whatever. Their experiences will give you invaluable specific guidance.
• If you’re someone who would benefit from STD, get at least three quotes. Buy nothing more expensive than Prince spaghetti without at least three quotes!

Friends, I expect a lot of buzz about this one. It’s a bit of a hot take, and I’m sure we’ll have a few folks that don’t agree. I’m excited for some discussion! We’ll be back soon with a similar breakdown of long-term disability insurance.