What is life insurance, and how does it work?
What is disability insurance, and how does it work?
- Short-term disability insurance: A short-term policy is usually designed to replace 80% or more of your gross income for a short duration of time. For example, if recovery from surgery will keep you out of work for several weeks or months, short-term disability can replace the income you lose while you're out of work. You typically need to wait for an elimination period—5 or 10 days—before the coverage kicks in. Employers may offer short-term disability insurance to their employees, and many subsidize that coverage (some pay the full cost), though the subsidized portion may be taxable to the employee.
- Long-term disability insurance: What happens if your short-term disability coverage runs out and you're still out of work? In that case, you'd turn to long-term disability, which typically kicks in after you've been out of work for an extended time, such as 180 days. Long-term disability policies are quite different from their short-term peers, typically covering only about 60% of your salary. Fortunately, the coverage can last for years—even through the rest of your life, depending on the design of the policy.