Free insurance. That has a nice ring to it, wouldn’t you agree? Yes, temporary disability insurance doesn’t cost you anything, but there is one caveat, you have to reside in one of five states or the U.S. territory Puerto Rico. Those states are:
- New Jersey
- New York
- Rhode Island
If you live in one of these states or Puerto Rico, how do you qualify for it? How is it different from Social Security disability insurance or short-term disability insurance? Is it enough to live off if I need it? These questions, and more, will be answered in this article.
Temporary Disability Insurance (TDI) pays you a monetary benefit of a few hundred dollars over a period of weeks if you can’t work due to an illness or injury you experienced outside of work and prevents you from working. You could be out of commission to recover from heart surgery, to convalesce from a broken back suffered from a fall at home, or mend from one of many other illnesses and injuries millions of people experience every year.
TDI is not the same as workers’ compensation, which covers you from illness or injury sustained at work, but not off-the-job.
TDI is not meant to replace your income or any other disability income insurance you may own. It is a government-sponsored or administrated social benefits program that pays a tiny benefit, not enough to live off.
TDI isn’t very difficult to qualify for. All that’s required to qualify is not being able to work because of a condition acquired off-the-job (workers’ compensation will pay you for injuries sustained on the job).
With TDI, you’re not paid because you’re permanently disabled; it’s expected by the state that you’ll be returning to the workplace after a quick recovery. TDI benefits for pregnancy and childbirth are the most common conditions for which claims are submitted.
States requiring TDI coverage set limits on the amount of time that you receive benefits. Depending on the state, it ranges from between half a year up to one full year. Upon recovery, your benefit will cease.
Not all states allow it, but some let you claim both workers’ comp benefits and TDI benefits. One stipulation – you had to have been receiving workers’ compensation benefits before you apply for TDI benefits.
To file a TDI claim, you’ll need to go through some red tape at your state’s office of disability insurance, which is frequently the same office that administers workers’ comp claims.
Unlike TDI, which is administered by the state, short-term disability insurance (STDI) is offered and administered by private companies, and it’s not free. Many people purchase STDI through their company’s employee benefits program.
A significant difference between the two types of disability insurance is the benefit amount. While TDI is measured in the hundreds of dollars and in a period of weeks, STDI typically replaces 70% of your income for a period of up to six months. Neither TDI nor STDI is meant to replace your income for an extended period of time - a long-term disability insurance policy is designed for that.
TDI is similar to Social Security Disability Insurance (SSDI) in that they’re both government programs. The similarities pretty much end there.
A significant difference between both programs is qualification. Whereas TDI is relatively easy to qualify for, SSDI is quite difficult. With SSDI, you must be so disabled that you can’t be expected to perform the duties of any other job. This can be very damaging to people who can only return to work doing a different type of job, often for less pay than what they were making before their disability.
The dollar amount that you receive from TDI and SSDI is dramatically different. TDI is typically a few hundred dollars per month, while the average benefit for SSDI in 2020 was $1,259 per month and can go as high as $2,861 per month. 90% of the beneficiaries of SSDI receive less than $2,000 per month, which is hardly enough for the average family to survive on.
If you think that you’ll never be out of work for more than a few weeks because you’re sick or injured, you might want to reconsider. It’s estimated that the average individual disability claim lasts over 30 months – which neither TDI nor STDI was designed for. Many people pay for short-term disability insurance to replace a portion of their income while they’re waiting for their benefits to commence from their long-term disability insurance plan.
Long-term disability insurance (LTDI) replaces 60-70% of your average monthly income, which may seem like it’s not enough until you factor in that you receive it tax-free and you’re living expenses typically decrease when you’re out on disability leave. The cost of LTDI generally is between 1% and 3% of your annual income. It’s the best value you’ll find in any type of disability insurance since the potential dollar benefit is so large and can be paid for years, even up to your retirement age.
The average waiting period for long-term disability insurance benefits to begin is 90 days. It can be as long as six months if you choose, which will substantially lower your monthly premium payment, much like selecting a higher deductible with your auto or homeowners insurance lowers the premium.
Learn More: Short Term vs. Long-Term Disability Insurance
TDI benefit periods are measured in terms of weeks, STDI in months, and LTDI in years. The monthly dollar amount of benefits payable ranges from several hundred per month for TDI to maximums of $10,000 or $20,000 per month for LTDI.
Long-term disability insurance provides the best long-term financial protection of any of the types of disability insurance we’ve looked at. The monthly cost is higher, but the potential payout is significant and could replace your income for many years.
If you live in a state that offers temporary disability insurance, you’ll surely want to take advantage of it if the need arises, but it’s only a small band-aid for what could be a major fracture.
Joel Palmer is a freelance writer and personal finance expert who focuses on the mortgage, insurance, financial services, and technology industries. He spent the first 10 years of his career as a business and financial reporter.
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