Short-Term Disability Insurance Policies: What to Know When Deciding if You Need One

As a physician, protecting the income you’ve worked so hard to secure is important. As such, most physicians in our physician communities have long term disability insurance policies to ensure their financial stability if they were to lose their ability to earn. However, these policies have a waiting period before benefits kick in that typically ranges from 30 days and 6 months. For those doctors who don’t yet have or want to use their emergency fund during this time period, but for whom waiting for their long term disability insurance benefits to kick in isn’t ideal, a short term disability (STD) insurance policy can provide crucial financial support. We often see questions about these policies asked by female physicians planning for unpaid maternity leaves or doctors wanting to plan for or protect against other medical conditions, illnesses, or injuries. It’s important to know that short term disability insurance policies are not always available or may not make sense for your situation. Below, we’ll discuss what factors to consider when deciding to purchase a policy, and address some frequently asked questions about short term disability policies.

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6 quick facts about short-term disability insurance for doctors

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What Is Short-Term Disability Insurance, and Do I Need It?

Short-term disability insurance provides you with a portion of your income if you are unable to work due to a qualifying illness or injury. Policies typically cover a percentage of your salary, often ranging from 40% to 70%, for a duration that usually spans from a few weeks to up to one year.

Short term disability insurance coverage kicks in almost immediately (usually within 7-14 days), and bridges the gap between the onset of a disability and the activation of long-term disability insurance (which can take 1-6 months or longer to kick in depending on your policy) or your return to work. It allows you to cover those vital costs like mortgage/rent, car loan, utilities, and other bills like a backup paycheck pre-disability pay.

You may be thinking that this is what your emergency fund is for, and you may be right, as many physicians see this as their plan for short term disability. This staple of personal finance for physicians can cover unanticipated expenses or temporary loss of income secondary to loss of a job, temporary disability, or a needed break. We always recommend having one that can provide 3-6 months of living expenses.

However, particularly for high income earners that earn far more monthly than their monthly expenses, a loss of 1-6 months income before their long term disability insurance kicks in may still be worth covering not just to avoid dipping into an emergency fund, but to protect against the loss of a large amount of income. We’ll cover this decision in more depth below.

Short vs. Long-Term Disability

As mentioned above, short-term disability insurance is not typically seen as an alternative to long-term disability insurance but an extra safeguard to provide a bridge to when your long term disability insurance plan kicks in.

Short term disability insurance protects you almost immediately but is intended to be temporary (usually at most for one year). Conversely, long term disability insurance policies will have a waiting period but then pay out monthly until the disability resolves or even up until a normal retirement age of 65-67 if the disability is permanent.

The waiting period, or elimination period, for long term disability policies varies, and you should check yours when deciding whether you need a short term disability insurance policy. Many physicians elect to have a longer elimination period as long term disability insurance premiums are significantly less the longer you are willing to wait before benefits kick in. For physicians who know they always have a solid emergency fund in place and who are willing to not make their physician salaries for a period of time, a longer elimination period such as 6 months is a common strategy to lower premiums.

Depending on how you acquire your short term disability policy, another key difference may be that the short term disability insurance policy may not be portable. Many physicians get their policies through their employers, and these policies usually do not follow them post termination of employment. Conversely, as it is recommended that physicians have an independent long term disability insurance policy outside of their employer, the independent policies would persist regardless of where you work.

One thing to consider when deciding about the short term disability policy is if you would rather decrease your elimination period on your long term disability insurance policy, as this may be more cost effective. If you need help navigating this, our recommended insurance agents for physicians can help you to decide what’s right for you.

Summary of the differences between short-term and long-term disability insurance

How Much Is Short-Term Disability Insurance and How Does It Work?

Short term disability insurance for the average person typically costs < $100 a month. However, your rate may vary depending on your age, specialty, salary, and health status, and insuring a (typically higher than the average person) physician income can cost more. Your insurance may also be more costly based on what percentage of your income you will receive or the duration or your elimination period.

If you receive your short term disability insurance policy through work, depending on how it’s set up, your employer may pay the full premium, may share the costs with you (your contributions come out of your paycheck), or may require you to pay the entire cost. There may also be an option to buy up the disability benefits that are offered at baseline by your employer.

In the event that you need your short-term disability insurance, assuming that you meet the qualifications of the policy, your policy will pay out the agreed upon percentage of your income for the specified maximum benefit time or until when you get better, whichever comes first.

Key Features to Look for in a Short-Term Disability Policy

Key features of a short-term disability policy to be aware of

Elimination Period

The elimination period is the time you wait before your benefits begin. Shorter elimination periods (e.g., 7-14 days) provide faster financial relief for physicians but often come with higher premiums

Coverage Amount

Policies replace a percentage of your income at different amounts. Find a policy that covers the essential expenses in your budget.

Portability

While many short-term disability policies are job specific and may not offer the choice of portability, you may be able to find policies that will move with you to a different practice/setting and provide continuous coverage. If you have an independent policy, it doesn’t matter where you work.

Exclusions and Limitations

Before committing to a policy, make sure you review it for any exclusions such as pre-existing conditions, and understand what types of injuries or illnesses are not covered. In particular, if you intend to use this policy for an unpaid maternity leave, ensure that it covers maternity leave and that there isn’t a certain period of time you have to hold the policy before you’re eligible to use it.

How to Get Short-Term Disability Insurance

There are a few ways to get short-term disability insurance. Regardless of which method you choose, remember to review the plan to see if the conditions make sense for your situation in terms of max payout and eligibility. These options include:

Your employer’s benefits package
Purchasing your own individual policy through an insurance broker. If your employer doesn’t provide adequate coverage or you are self-employed at your own private practice, this can be a good option.
A medical association that offers discounted group rates to their members

Short-Term Disability Insurance for Pregnancy

Many of our physician members want to know if short-term disability insurance can cover maternity leave. The short answer is that it can, but it’s complicated. For an in-depth analysis, check out our article all about navigating insurance with pregnancy.

FAQs about disability insurance policies when your pregnant

If you have already been pregnant before, certain pregnancy-related conditions or complications can impact your eligibility at the time of application. An insurer may impose exclusions or postponements for conditions related to your pregnancy or being in your third trimester (e.g., on bed rest, previous cesarean section).

Additionally, most policies will only cover your pregnancy if you were not pregnant at the time of buying the insurance, during your elimination period, or for a certain amount of time after your policy goes into effect. So if you plan on getting pregnant and using this policy, you’ll likely want to look into buying a policy well in advance of becoming pregnant.

Know that if your company is also offering you paid maternity leave, your short-term disability insurance most likely won’t let you double dip with their coverage.

The nature of your pregnancy may also dictate how long you will be covered. For vaginal births with no complications a typical allotment is 6 weeks, while cesarean sections or more complicated births can provide up to 8 weeks of coverage.

Can You Buy Short-Term Disability Insurance After You’ve Been Injured?

Insurance companies are unlikely to underwrite policies where they are guaranteed to lose money or have a high likelihood of losing money. Generally, you cannot purchase short-term disability insurance to cover an injury or illness that has already occurred. Most policies exclude pre-existing conditions, and insurance providers require underwriting to assess your health before issuing coverage.

Do I Really Need Short Term Disability Insurance?

For some physicians, the alleviation of stress about needing to drain their emergency funds if they have an unforeseen temporary health scare is enough to justify the purchase of a short-term disability policy.

This answer to whether you NEED short term disability insurance, though, is going to depend a lot on your individual risk tolerance, how long you can go without income, and how much you want to ensure that you don’t lose out on saving and investing while you are out of work for a disability.

As with any insurance policy purchase, it’s important to consider the costs of the policy and not overinsure against risks that you can self-insure for. The fact is that if you have a solid emergency fund and a long term disability insurance policy, many physicians can afford not to earn income for a few months. If you’re part of a dual income family, this may also void the need to protect against the loss of income. Additionally, if your employer has a generous sick leave/paid extended leave policy, it can double as short-term disability coverage.

However, the longer the elimination period on your long term disability insurance policy, the more impactful the decision to forgo income in the short term may be.

For example, if you have an elimination period of 6 months before your long term disability insurance benefits kick in, you may not want to have (or may not yet have) 6 months worth of expenses in an emergency fund, and it may be necessary to either decrease your elimination period or buy a short term disability insurance policy.

Even if you have a decent sized emergency fund, many physicians worry about depleting it faster than anticipated or not being able to make progress towards other financial goals during the time of disability. As most physicians are able to save some money monthly with their physician incomes, the thought of losing out on that savings and investment for months may not be palatable.

Another exception is if you know you are going to need to use short term disability at some point in the future. For example, if you are planning a shoulder or knee surgery in a year or think that you may get pregnant in the not too distant future, it may just be smart to snatch up a short term disability insurance policy if you have access to one, assuming that you find one that will cover those situations and that you qualify for it based on your anticipated timeframe.

If you need help navigating this decision, our recommended insurance agents for physicians can help you to decide what’s right for you.

Conclusion

Short-term disability insurance isn’t necessary for all physicians in the way that we encourage purchasing a long term disability insurance policy. That said, it is worth consideration for physicians who want to safeguard their income and financial stability during unexpected health challenges or planned periods of recovery time from surgery or maternity leave. The decision to purchase will depend on an individual doctor’s risk tolerance, financial stability, health considerations, and what options are even available to them at the time they look into these policies. It is important to be aware of the alternatives such as emergency funds and the option to decrease the elimination period on your long term disability insurance policy. By planning ahead, you can focus on your recovery during times where you are unable to work without undue financial stress.