Employee Benefits

Disability Insurance — Protecting Your Employees' Most Valuable Asset

An employee's ability to earn income is their most valuable financial asset — yet most people are significantly more likely to become disabled than to die during their working years. Short and long term disability insurance replaces a portion of income when employees can't work due to illness or injury.

Get a Disability Quote Talk to an Advisor

Short Term vs. Long Term Disability — How They Work Together

Short term and long term disability are designed to work in sequence — STD covers the first weeks or months, and LTD picks up after STD ends for extended or permanent disabilities.

Short Term Disability (STD)

Replaces a percentage of salary (typically 60–70%) when an employee is unable to work due to illness, injury, surgery, or pregnancy. Benefits begin after a short elimination period — typically 0–14 days — and last up to 13–26 weeks.

Long Term Disability (LTD)

Picks up where STD ends — providing income replacement for extended disabilities lasting months or years. Benefits typically begin after 90–180 days and can last to age 65 or Social Security Normal Retirement Age.

Benefit Amount

Both STD and LTD typically replace 60–70% of an employee's pre-disability income, up to a monthly maximum. Benefits are coordinated with Social Security disability, workers' comp, and other income sources.

Elimination Period

The waiting period before benefits begin. STD typically has a 0–14 day elimination period. LTD typically has a 90–180 day elimination period. The LTD elimination period should align with when STD benefits end.

Definition of Disability

"Own occupation" covers you if you can't perform the duties of your specific job. "Any occupation" covers you only if you can't perform any job. Own occupation definitions provide significantly better protection.

Pre-Existing Condition Limitations

Many group disability plans exclude or limit benefits for pre-existing conditions during the first 12–24 months of coverage. This is less restrictive in group plans than individual policies due to guaranteed issue.

The disability risk is real

Statistics consistently show that disability is far more common than most people expect.

  • 1 in 4 workers will experience a disability before retirement
  • Most disabilities are caused by illness, not workplace injury
  • Workers' comp doesn't cover off-the-job disabilities
  • Social Security disability is difficult to qualify for
  • Average LTD claim lasts nearly 3 years

STD & LTD together create a complete program

Neither product alone fills all the gaps.

  • STD covers the first weeks/months (salary continuation)
  • LTD covers extended and permanent disabilities
  • Together they eliminate nearly all income-loss gaps
  • Pregnancy covered under STD for maternity leave
  • Coordinate with any state-mandated disability programs

Plan Design Considerations

Key Decision

Benefit Percentage

Most plans replace 60–70% of pre-disability income. A higher percentage means better protection for employees but higher premiums. 60% is the most common group STD/LTD design.

  • 60% of salary is most common
  • 66.7% and 70% also common
  • Coordinated with other income benefits
  • Monthly maximum benefit cap
Key Decision

Elimination Period

How long must an employee be disabled before benefits begin? Shorter elimination periods mean faster benefit access — and higher premiums. Coordinate LTD elimination period with STD benefit duration.

  • STD: 0–14 days typical
  • LTD: 90–180 days typical
  • Align with sick leave and STD duration
  • Longer elimination = lower premium
Key Decision

Own vs. Any Occupation

Own occupation definitions are significantly more employee-friendly — covering inability to perform your specific job. Many LTD plans transition from own to any occupation after 24 months.

  • Own occupation: can't do your specific job
  • Any occupation: can't do any job
  • 24-month own occ transition common
  • Own occupation = better protection

Benefit Duration

STD typically lasts 13–26 weeks. LTD can run to age 65 or SSNRA, or can be limited to 2 or 5 years. Longer benefit periods cost more but provide substantially better protection.

  • STD: 13–26 weeks typical
  • LTD to age 65 most comprehensive
  • 2-year or 5-year LTD options available
  • Coordinate with retirement planning

Employer vs. Employee Paid

If the employer pays LTD premiums, benefits are taxable income to employees when received. If employees pay premiums with after-tax dollars, benefits are tax-free. Tax treatment affects net benefit and plan design decisions.

  • Employer-paid = taxable benefits
  • Employee-paid = tax-free benefits
  • Mixed approaches possible
  • Tax planning consideration at design stage

Return-to-Work Features

Many modern disability plans include return-to-work incentives — allowing employees to return part-time or in a reduced capacity and continue receiving partial disability benefits.

  • Partial disability benefits
  • Work incentive provisions
  • Rehabilitation support
  • Vocational training benefits

Common Questions

  • Short term disability (STD) covers the first weeks or months of a disability — typically up to 26 weeks. Long term disability (LTD) kicks in after STD ends and can provide benefits for years or until retirement age. They work together to eliminate gaps in income replacement.

  • Workers' compensation only covers work-related injuries and illnesses. Short and long term disability cover disabilities regardless of where or how they occurred — illness, injury, surgery, pregnancy, mental health conditions. The vast majority of disabilities are not work-related, so workers' comp is not a substitute for disability insurance.

  • Short term disability is mandated by law in California, Hawaii, New Jersey, New York, Rhode Island, and Puerto Rico. Most other states do not require it. Long term disability is not required by law anywhere in the US. Regardless of legal requirements, disability coverage is a critical component of a complete benefits program.

  • If the employer pays LTD premiums, disability benefits received are taxable income. If employees pay premiums with after-tax dollars, benefits are tax-free. Many benefits advisors recommend having employees pay LTD premiums — so benefits are tax-free when they actually need them. We'll help you evaluate the tradeoffs.

  • Pregnancy-related disability — including recovery from childbirth — is typically covered under STD as a medical disability. STD often forms the foundation of a paid parental leave program, providing 6–8 weeks of income replacement after birth. This is an important consideration for employers designing a family-friendly benefits package.

Protect your employees' income when they need it most.

Short and long term disability insurance is the safety net your employees may never think about — until they need it.

Get a Disability Quote Talk to an Advisor