What is Short Term Disability Insurance?

Ready for some harrowing statistics? The Social Security Administration estimates that approximately 25% of 20-year-olds (that's 1 in 4!) will become disabled and be unable to work before reaching age 67.

Unfortunately, most people are not prepared for such medical emergencies to happen. If you're young, healthy, and productive, it may be hard to fathom that your status could ever be compromised.

You still need to plan for the worst! If you're not prepared, you risk facing serious financial issues if disability suddenly makes you unable to work.

Short term disability insurance can provide some much-needed relief for you and your family. Let's get into the benefits.

What is Short Term Disability Insurance?

As mentioned, there is a high chance of becoming disabled at some point during your working career.

With that in mind, the Council of Disability Awareness states that the average long term disability incident lasts 34.6 months. That's just about three years in lost employment and wages.

Short term disability insurance provides a financial benefit that pays a percentage of your employment salary for a designated amount of time if you become ill or injured and cannot perform your job duties.

This income should help cover your everyday expenses, such as rent/mortgage, utilities, groceries, and childcare.

While plans vary, short term disability insurance will typically replace between 60%-85% of your regular income.

How Do The Benefits Work?

In general, benefits are claimed after an injury or illness. A physician must provide medical clearance citing the need for extended absence from work.

Short term benefits typically last up to 17 weeks (5 months), but some can last up to 26 weeks (6 months). The benefits are assessed and granted based on how the plan is determined with the individual insurance provider.

Some benefits will start out right away. In other cases, it can take up to 3-7 days. Regardless of the case, the insurance plan will be able to let you know what to expect signing when signing up.

What About My Employer's Plan?

Some employers offer short term disability plans, but each company has different policies. Before shopping around, make sure to consult with your employer's human resources department to verify any details.

If you're shopping on your own, you'll want to determine how long the benefits will last and how the insurance provider defines the disability, as these can vary from plan to plan.

The term "any occupation" means that you will receive your disability benefits only if you're unable to work at all. You won't qualify for benefits if you can work in a different occupation from the one you had before your disability (taking into account your education, experience, and training).

The term "regular or own" occupation means that you will receive benefits if you're unable to perform the main duties of your career. You'll still be able to receive benefits if you choose to work in a different job from the one you had before your disability.

How Is This Different from Canadian Employment Insurance (EI?)

Employees can claim Canadian Employment Insurance (EI) if they work for a company that does not offer short term disability benefits.

However, claims currently max out at a certain, fixed payout each week (contingent on the specific year). For example, in 2015, the rate was $524 per week or $27,248 per year.

With that said, the claim amount may be too low for employees who make higher wages. If your cost of living is higher than what EI can provide, short term disability insurance may better suit your financial needs.

It should also be noted that the wait time for EI benefits to payout tends to be longer. There is a mandatory waiting period, and employees may have to wait about 2 weeks for the benefits to actually go into effect.

If you're supporting a family or have crucial bills to pay, this wait time may be incredibly costly and/or detrimental.

What To Ask Before Buying a Plan

Just like with any disability insurance plan, it's important to understand the terms and limitations before signing any contracts.

Premiums

• Cost of policy
• Will you need to make premium payments with the disability?

Benefits

• Amount of money you will receive each month
• Taxation status of benefits
• Do you receive benefits for partial disability?
• Are benefits adjusted for inflation?
• Can you increase coverage without a medical exam?

General Information

• Exclusions to the plan
• Pre-existing condition clauses
• How the plan specifically defines disability
• Guaranteed renewability (can renew automatically

Again, it is important to note that each short term disability insurance plan will have different terms and limitations depending on their policies. Make sure to practice your own due diligence and ask!

Who Should Buy This?

In a nutshell? Everyone who depends on work income for basic survival.

The long answer is this: if you suddenly became ill and could no longer work, would your savings and additional income (from your spouse or family) be enough to adequately live on until you could resume working again?

What if you have a serious injury and won't ever be able to work again? Would you be able to sufficiently make it before tapping into retirement benefits? Would you be able to adequately take care of your children and pay all your necessary expenses without your income?

If the answer is no or I don't know, you have your answer about buying into a plan. The policy is a no-brainer.

Final Thoughts on Short Term Disability Insurance

Nobody wants to think about tragedy striking, but it's important to be prepared if the worst case scenario happens. Insurance is often worth its weight in gold when it comes to having a peace of mind for you and your family.

At Insurdinary, we're passionate about helping Canadians secure quality insurance plans at the lowest rate possible.

Contact us today for a complimentary quote.