Group versus Individual Coverage

Some people have Short-Term Disability (STD) insurance through an employer, union, or other professional organization. This type of policy is known as group coverage. You can also purchase individual coverage directly from an insurance company or agent.

The General Design of an STD Policy

Most STD policies have the same general design. You, or your employer, pay a monthly premium to be covered. When an illness or injury prevents you from working, you apply for a benefit by speaking with your Human Resources representative or your insurance agent. Most STD policies require a document from your doctor that explains your condition and estimates how long you’ll be gone from your job. There will probably be a waiting period between the date you leave work and the date when you actually receive your benefits. Many policies also require you to use some or all of your sick days before the policy begins to pay. Once the waiting period is over, you will generally receive a set percentage of the wages you received before you were disabled. For example, if you were paid $500 per week, and your policy pays 50% of pre-disability earnings, you’ll get a benefit of $250 per week. Short-term policies generally last between 9 weeks and 52 weeks, after which time your benefit will end. You may then have the option of moving to a Long-Term Disability policy or applying for Social Security Disability Insurance.

Differences Between Policies

While all STD policies share these general features, each has different specifics.

• Definition of Disability: Some STD policies define a disability in terms of an inability to work at your own job. These are known as “own occupation” definitions of disability. Other policies define disability as an inability to work in any job, known as an “any occupation” definition. Generally, policies with the “any occupation” definition are cheaper.
• Service Wait: Some employers will only offer STD policies after you’ve worked for them for a set period of time, for example, one year. Some policies also pay higher benefits for people who have worked for longer periods. Also known as a minimum service requirement.
• Waiting Period: Waiting periods can be up to 180 days. Generally, policies with longer waiting periods are cheaper. Many plans have different waiting periods for different types of disabilities. For example, a plan may have a 7 day waiting period for illnesses and no waiting period for accidents.
• Benefit Rates: Benefit rates vary, but are generally between 40% and 70% of your pre-disability earnings. You will probably pay a higher premium for a higher rate. Some policies also change rates during the benefit period. For example, your policy may pay 80% for the first three weeks of disability and then 50% for the remainder of your benefit period.
• Partial Disability: Some plans allow you to return to work part-time while continuing your benefits. This is usually referred to as a “residual” or “loss of earnings” benefit. For example, if you worked 8 hours per day before your disability, and you are able to return to work 4 hours a day, the STD policy may replace some of your income for the remaining 4 hours.
• Benefit Periods: Policies may allow you to return to work on a trial basis. For example, your policy may give you a two week trial period. If you go back to work for less than two weeks and then find that you can’t do your job because of your disability, the policy would allow you to continue your benefits as if you hadn’t returned to work. If you are able to stay at work for more than those 2 weeks, and then you find that the same disability prevents you from doing your job, you may have to re-apply and go through another waiting period, or, you may no longer be eligible to receive a benefit based on that disability.
• Transition to Long-Term Disability Insurance: Some STD plans automatically transition to an LTD plan if you are still disabled after the benefit period ends.
• Changes to your premium: If you sign up for a “non-cancelable” policy, the insurance company cannot change your premiums or benefits. If you sign up for a “guaranteed renewable” policy, the company is allowed to change your premiums, but only if they are changing it for an entire group of policyholders.
• Exceptions: Many policies will not cover disabilities caused by suicide attempts, drug abuse, war, or attempts to commit a crime. Pre-existing conditions are also frequently excluded (see below). On-the-job injuries, which are covered by workers’ compensation insurance, are also not covered.

Disability Coverage through California State Disability Insurance

In California, most employees are covered by the State Disability Insurance program (SDI), which provides partial wage replacement. The SDI program is funded through employee payroll deductions. If your employer participates, they may offer additional coverage if you pay a premium.

Signing up for a Group Plan: Avoiding Medical Underwriting

If your employer does not participate in SDI, it may offer a voluntary plan, which is an STD policy like the ones described above. Your employer will allow you to sign up for the plan during an initial enrollment period. During this period, the insurance company cannot deny you coverage based upon a pre-existing condition, so it’s very important to sign up then. You may be required to work for a certain period of time before a pre-existing condition is covered (an exclusionary period), but you will still be able to sign up for the plan.

If you don’t sign up during initial enrollment, you’ll have to undergo medical underwriting. The insurance company will review your medical records to find out if you have pre-existing condition or are getting treatments for a potentially disabling condition. Treatments can include advice from a doctor or a medication. If the insurance company finds that you do have a health condition or have had treatments, the insurance company can deny you coverage, exclude conditions from being covered, or have an exclusionary period for your conditions.

Signing up for an Individual Policy

If you work for an employer that doesn’t offer any STD plan, you may want to consider buying an individual policy. You will have to undergo medical underwriting (see above) to get individual coverage. When shopping for individual policies, look for reputable companies and be sure to read all of the details of your policy. You can find ratings of insurance providers at the following websites:

• Moody’s
• Standard and Poor’s
• A.M. Best

When you are Injured

Once you have your policy and are injured, be sure to speak with your HR manager or insurance agent as soon as possible to begin the application process.

• STD benefits are taxable, but you may be able to avoid paying taxes on benefits by paying taxes on the premiums. Contact your income tax professional for more information.
• STD policies will subtract any assistance you’re getting from other insurance programs. So, for example, if your benefit is $500 a month and you begin to receive an SSDI check for $100 a month, your STD benefit will be reduced to $400 a month.
• Some employers require that you participate in their retirement fund in order to be eligible for STD benefits.

Kathy's Story

Kathy had just started a new job. She decided to ask her Human Resources (HR) representative about what benefits she was eligible for and how to sign up for them. Kathy's employer did not participate in the State Disability Insurance, program, but did offer Short-Term Disability group coverage. The HR person Kathy spoke with told her that the initial enrollment period lasted for another month. Kathy had a back injury and realized that she could sign up for disability insurance without medical underwriting if she signed up during this period. She still had to disclose her condition, and she would have a 6 month exclusionary period, but they could not deny her coverage. She signed the papers the next day. Her policy had a one year minimum service requirement, which meant that she would not be eligible for a benefit until she had worked at the company for a full year. For back injuries, she would have to wait an additional 6 months to be covered.

Two years later, Kathy re-injured her back. She went to the doctor, who told her that she would not be able to work for at least 3 months. Kathy immediately notified the HR representative, who gave her the forms that she would need to have her doctor fill out. Kathy faxed the signed forms to her office. There was a seven day waiting period on her policy, which meant that she would receive her benefit a week after she left work.

After the waiting period, Kathy began to receive a weekly disability check. She had earned $400 a week before her injury, and her policy paid 70% of pre-disability earnings. That meant her check would be for $280 a week until she returned to work or her policy ended. Three months later, Kathy and her doctor decided that she was well enough to return to work. She notified her company and went back to work the following week. Her benefit check stopped.

Kathy was able to work for 4 days before she realized that she was in too much pain. She worried that she wouldn't be able to go back on her disability benefits, so she spoke again with her Human Resources department. They told her that as long as she hadn't completed 2 full weeks of work, she could go back on benefits as if she hadn't returned to work at all. Kathy decided to go back on the disability benefit.

Two months later, Kathy felt completely healed, but decided to take it easy. She remembered that her policy allowed her to return to work part-time, and would pay 70% of her income for the hours that she couldn't work. She decided to work for 4 hours a day. Before her injury, she had worked 8 hours a day, 5 days a week, for $10 an hour. That came to $400 a week. By returning to work half the time, she would make $200 in wages, and the insurance would pay $140 (70% of $200) for the hours she was missing. After a month, Kathy and her doctor agreed that she could return to work full time. She again alerted her HR department, stopped receiving her check, and returned to work full time.