If a self employed person was going to buy one, or the other, what would the considerations be? Why would a person only want 4 months of benefit (short term) for the same, or more, price that the same cost would give on a 5 year benefit period with a 60 or 90 day elimination period?
Many self employed people would lose everything if they were out of work for 90 days. Thumper
The answer is contained in your question. ST disability usually kicks in after 2 or 3 days and in my experience its usually cheaper than LT disability, but you say differently and I haven't priced a policy lately so I'll defer on that part.
LT Disability usually has between a 30 and 90 elimination period. The longer the elimination period the lower the premium. PLUS to get long term disability you have to be diagnosed with a condition that is expected to be LONG TERM, however the insurance carrier defines that. For the sake of illustration let's assume that long term means a disability expected to last MORE than six months. A series of unfortunately accidents - broken hand, broken leg, broken ribs - could keep you from working for several weeks or maybe even a couple of months BUT they aren't likely to last more than six months. Under this scenario you'd never qualify for long term disability benefits.
Also, long term disability policies usually have clauses that define whether you can't work at all or just in your profession. So if you were a truck mechanic who developed a bad back and couldn't do that work any more BUT could still pump gas or get a desk job you might not get long term disability benefits if the policy said you have to be unable to do ANYTHING. Most Short Term disability policies don't have that requirement, since they are short term.
The best thing is to sit with an agent, whether you buy from them or not, and discuss the details of the two policies, go over the requirements to get benefits and do your best to compare apples to apples. Obviously if you've got a years worth of living expenses in a CD at the bank you may not be overly worried about being out of work for 90 days or so and you might want to wait for long term disability to kick in. Or maybe not.
One last thing to consider - if the policy is offered by your employer and ESPECIALLY if you are paying for it, make sure to pay the premiums with AFTER tax dollars EVEN IF the company lets you pay them with pre-tax dollars via cafeteria plan type arrangement. When you pay with pre-tax dollars the benefit is taxable, when you pay with after tax dollars the benefit is TAX FREE, this is usually a better way to go since you seldom get more than 65% of your regular wages. So when you collect you collect less to start with, to then have to pay taxes on that money stings even more.
Good luck, Gene E. Utterback, EA, RFC, ABA
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