When you hire US employees, disability insurance becomes a critical component of your benefits strategy. Understanding the distinction between short-term and long-term disability coverage determines whether your team has adequate protection and whether you’re meeting state compliance requirements.
One in four of today’s 20-year-olds will become disabled before reaching retirement age, according to the Social Security Administration. Yet at least 51 million working adults in the United States lack disability insurance beyond basic Social Security coverage. This protection gap creates significant risk for both employees and employers operating in the American market.
We’ve guided hundreds of international companies through the complexities of US employee benefits. Disability insurance consistently emerges as one of the most misunderstood yet essential components of competitive compensation packages. The stakes are high. Inadequate coverage can leave your employees financially vulnerable and your company facing retention challenges in competitive talent markets.
This comprehensive guide explains everything international employers need to know about short-term versus long-term disability insurance in the United States. You’ll understand coverage differences, state requirements, cost structures, and how to implement effective disability benefits for your American workforce.
Understanding Disability Insurance: The Foundation
Disability insurance replaces a portion of an employee’s income when they cannot work due to non-work-related illness or injury. This protection covers conditions ranging from pregnancy complications to cancer treatment, from mental health issues to severe injuries sustained outside the workplace.
Approximately 5.6% of American workers experience a short-term disability each year, typically lasting six months or less. The financial impact extends beyond lost wages. Medical expenses compound during disability periods, and without income replacement, employees face impossible choices between treatment and financial stability.
Disability insurance differs fundamentally from workers’ compensation. Workers’ compensation covers only work-related injuries and illnesses. Disability insurance protects employees during non-occupational health events, making it essential for comprehensive employee protection.
The Current Coverage Landscape
Only 40% of civilian workers have access to short-term disability insurance, according to the Bureau of Labor Statistics. Long-term disability access reaches just 35% of workers. This coverage gap leaves millions of Americans financially exposed during health crises.
Access varies dramatically by occupation and employer size. Management and professional workers enjoy significantly higher access rates than service industry employees. Companies with 500+ employees provide coverage far more frequently than smaller organizations, creating significant disparities in workforce protection.
Through our Employer of Record and PEO+ services, we provide international companies with competitive disability insurance options that attract and retain top American talent.
Short-Term Disability Insurance: Covering Immediate Needs
Short-term disability (STD) insurance provides income replacement for temporary disabilities lasting several weeks to several months. This coverage bridges the gap between when an employee becomes unable to work and when they either recover or transition to long-term disability benefits.
Typical Short-Term Disability Characteristics
Feature | Standard Coverage |
Benefit Duration | 3-6 months (up to 12 months in some plans) |
Waiting Period | 7-14 days (some plans 30 days) |
Income Replacement | 50-70% of pre-disability wages |
Maximum Weekly Benefit | Varies by state/policy (often $1,000-$2,000) |
Coverage Scope | Non-work-related illness, injury, pregnancy |
Common Short-Term Disability Claims
Understanding what triggers STD claims helps employers anticipate utilization patterns and budget appropriately. Pregnancy represents 25% of all short-term disability claims, making it the single most common reason employees file for benefits.
Other frequent STD causes include:
- Musculoskeletal Issues – Back injuries, joint problems, recovery from surgery (17%)
- Injuries – Fractures, sprains, strains from non-work accidents (11%)
- Mental Health Conditions – Depression, anxiety, stress-related disorders
- Surgical Recovery – Planned surgeries requiring recovery periods
- Acute Illnesses – Serious infections, complications from chronic conditions
State-Mandated Short-Term Disability Programs
Only five states require employers to provide short-term disability coverage: California, Hawaii, New Jersey, New York, and Rhode Island. Puerto Rico also maintains mandatory requirements. These are the only jurisdictions in the United States with state disability insurance mandates.
These mandates create compliance obligations for any company employing workers in these jurisdictions, regardless of where the company is headquartered. Even one employee working in a mandatory state triggers coverage requirements.
State Disability Insurance Requirements
State | Program Name | Benefit Duration | Income Replacement | Maximum Weekly Benefit | Waiting Period | Employee Contribution |
California | State Disability Insurance (SDI) | Up to 52 weeks | 60-90% (income based) | Varies by wages | 7 days | Yes – via SDI tax |
Hawaii | Temporary Disability Insurance (TDI) | Up to 26 weeks | 58% of weekly wages | Varies by wages | 7 days | Up to 0.5% of wages (max $6/week) |
New Jersey | Temporary Disability Insurance (TDI) | Up to 26 weeks | 85% of average weekly wage | $1,081/week (2025) | 7 days | No – employer pays 100% |
New York | Disability Benefits Law | Up to 26 weeks | 50% of wages | $170/week | 7 days | Up to 0.5% of wages (max $0.60/week) |
Rhode Island | Temporary Disability Insurance (TDI) | Up to 30 weeks | Varies by formula | Varies by wages | 7 days | Yes – via payroll tax |
Puerto Rico | SINOT Program | Up to 26 weeks | Varies by wages | Varies by wages | 7 days | Yes – shared contribution |
There are no mandatory short-term disability insurance requirements for the remaining 45 states. Employers may offer voluntary coverage. Companies operating in these states must either participate in state programs or purchase private insurance meeting or exceeding state benefit minimums. Compliance failures result in penalties and potential employee claims for unpaid benefits.
Who Pays for Short-Term Disability?
Cost structures vary by state and employer policy. In mandatory states, funding typically involves employee payroll deductions, employer contributions, or both. California employees pay through State Disability Insurance (SDI) tax withholdings. New Jersey employers now pay 100% of TDI costs.
In states without mandates, employers offering voluntary STD coverage usually pay most or all premiums. Some companies require employee contributions, particularly for enhanced benefit levels exceeding basic coverage.
Long-Term Disability Insurance: Extended Protection
Long-term disability (LTD) insurance provides extended income replacement for disabilities lasting months, years, or until retirement age. This coverage becomes critical when employees face chronic conditions, severe injuries, or progressive diseases preventing sustained work capacity.
Typical Long-Term Disability Characteristics
Feature | Standard Coverage |
Benefit Duration | 2-10 years, to age 65, or lifetime (varies by policy) |
Waiting Period | 90-180 days (elimination period) |
Income Replacement | 50-70% of pre-disability wages |
Maximum Monthly Benefit | Often capped at $5,000-$15,000 |
Coverage Scope | Non-work-related long-term illness, injury, disability |
Common Long-Term Disability Claims
Musculoskeletal disorders account for 29% of long-term disability claims, making them the leading cause of extended work absence. These conditions include chronic back problems, degenerative joint diseases, and serious spinal injuries requiring extended treatment or permanent accommodation.
Other frequent LTD causes include:
- Cancer – Treatment duration and recovery periods often exceed short-term coverage
- Mental Health Disorders – Severe depression, anxiety disorders, PTSD requiring extended treatment
- Cardiovascular Disease – Heart attacks, strokes, serious cardiac conditions
- Neurological Conditions – Multiple sclerosis, Parkinson’s disease, severe migraines
- Autoimmune Diseases – Lupus, rheumatoid arthritis, Crohn’s disease
Definition of Disability: Own Occupation vs. Any Occupation
LTD policies typically include two phases of disability definition. Understanding these phases proves essential for both employers selecting policies and employees evaluating coverage adequacy.
“Own Occupation” Period (typically first 24 months): Employee qualifies for benefits if unable to perform their specific job duties. A surgeon with hand tremors qualifies even if capable of other work.
“Any Occupation” Period (after initial period): Employee must prove inability to perform any occupation for which they’re reasonably qualified by education, training, or experience. This stricter definition reduces benefit eligibility significantly.
Premium policies offer “own occupation” coverage throughout the entire benefit period, providing stronger protection but commanding higher premiums. Group policies through employers typically transition to “any occupation” after 24 months.
Social Security Disability Insurance: The Safety Net
Many employees assume Social Security Disability Insurance (SSDI) provides adequate long-term protection. This assumption creates dangerous financial vulnerability. Only 30% of SSDI applications gain approval, with most approvals coming only after lengthy appeals processes.
The average SSDI benefit is just $1,581 per month, barely $19,000 annually, well below poverty level for most families. The application process typically takes 3-5 months for initial decisions, with appeal backlogs exceeding 230 days.
Private LTD insurance fills this critical gap, providing higher benefit levels with more accessible qualification criteria and faster claim processing. Employers offering robust LTD coverage demonstrate genuine commitment to employee financial security.
Key Differences: Short-Term vs. Long-Term Disability Insurance
Understanding the distinction between STD and LTD coverage helps employers design comprehensive protection strategies. These programs work together, with short-term coverage bridging immediate needs and long-term coverage protecting against extended or permanent disabilities.
Coverage Duration and Timing
Short-term disability activates quickly—often after just 7-14 days—and provides benefits for several months. Long-term disability requires longer waiting periods (elimination periods) of 90-180 days but provides benefits for years or until retirement.
This timing creates a potential gap. Employees exhausting short-term benefits before long-term coverage activates face periods without income replacement. Well-designed benefit packages coordinate STD and LTD timing to eliminate coverage gaps.
Benefit Amounts and Structures
Both STD and LTD typically replace 50-70% of pre-disability income. However, maximum benefit caps differ substantially. Short-term maximums generally range from $1,000-$2,000 weekly. Long-term maximums often reach $5,000-$15,000 monthly but may cap total benefits at specific dollar amounts.
Higher earners frequently find group disability coverage insufficient for their actual needs. Executives and specialized professionals should consider supplemental individual policies providing additional income replacement beyond group plan maximums.
Medical Requirements and Approval Process
Short-term disability claims generally require straightforward medical documentation verifying inability to work. Approval processes move quickly, with benefits often starting within 1-2 weeks of filing.
Long-term disability claims face substantially more scrutiny. Insurance companies conduct thorough medical reviews, often requiring independent medical examinations, extensive documentation, and detailed functional capacity evaluations. The rigorous approval process reflects the extended benefit duration and higher financial exposure for insurers.
Cost Structures for Employers
Short-term disability premiums typically cost 0.5-1.5% of covered payroll. Long-term disability premiums range from 0.3-0.8% of payroll. Actual costs vary based on industry risk, benefit levels, elimination periods, and employee demographics.
Employers often pay full premiums for basic coverage levels, with employees optionally purchasing enhanced benefits. This approach provides baseline protection while allowing individuals to customize coverage matching their specific needs and risk tolerance.
Implementing Disability Insurance for Your US Workforce
International companies entering the American market face unique challenges structuring competitive benefits packages. Disability insurance represents a critical component of comprehensive employee protection, yet many foreign employers struggle understanding regulatory requirements and market expectations.
Compliance Obligations by State
Operating in California, Hawaii, New Jersey, New York, or Rhode Island creates immediate state disability insurance obligations. These mandates apply regardless of company size, industry, or employee count. Even a single employee in a mandatory state triggers compliance requirements.
Private insurance meeting or exceeding state minimums satisfies legal requirements in California, Hawaii, New Jersey, and New York. Rhode Island requires participation in the state plan with limited exceptions. Employers maintaining operations across multiple states need jurisdiction-specific compliance strategies for each location.
Our team navigates these complexities for international companies daily. We ensure proper registration, premium payment, employee communication, and ongoing compliance in all mandatory states through our comprehensive employment services.
Market Competitive Practices
While most states don’t mandate disability coverage, competitive talent markets demand comprehensive benefits. Technology companies, professional services firms, and knowledge-based industries typically offer both STD and LTD coverage as standard benefits.
Startups and growth-stage companies increasingly include disability insurance in early-stage compensation packages. Top talent expects comprehensive protection, and omitting disability coverage places companies at disadvantage in competitive recruiting situations.
Integration with Other Benefits
Disability insurance integrates with other benefits creating comprehensive employee protection. Coordination with health insurance ensures continued coverage during disability periods. Life insurance policies often include waiver of premium riders during long-term disability.
Paid family and medical leave programs provide job protection and sometimes partial wage replacement. Disability insurance supplements these programs, providing higher income replacement and extending beyond FMLA’s 12-week protection period.
Communication and Education
Many employees misunderstand disability insurance or underestimate disability risks. Only 16% of adults consider themselves very or extremely knowledgeable about disability insurance, creating education opportunities for employers.
Clear communication about coverage terms, filing procedures, and benefit amounts improves employee understanding and appreciation. Annual benefits enrollment provides natural opportunities for disability insurance education, helping employees recognize coverage value and make informed decisions about voluntary benefit levels.
Implementing Disability Insurance for Your US Team
Understanding disability insurance differences represents the first step toward comprehensive employee protection. Successful implementation requires strategic planning, proper vendor selection, and ongoing administration ensuring continued compliance and competitive positioning.
Step 1: Assess Your Obligations and Needs
Determine your company’s specific disability insurance obligations based on employee locations. Any workers in California, Hawaii, New Jersey, New York, or Rhode Island create mandatory coverage requirements. Review industry competitive practices for your specific sector and talent markets.
Consider employee demographics, compensation levels, and retention objectives when designing coverage levels. High-earning professionals expect more generous disability benefits than entry-level positions typically receive.
Step 2: Evaluate Coverage Options
Short-term and long-term disability insurance can be obtained through multiple channels. State programs satisfy mandatory requirements in applicable states. Private group insurance through carriers like Unum, Guardian, or Prudential provides customizable coverage. Our PEO+ solutions offer pre-negotiated group rates with simplified administration.
Evaluate elimination periods, benefit periods, coverage percentages, maximum benefits, and policy definitions when comparing options. Apparent premium savings often reflect reduced coverage that may prove inadequate during actual claims.
Step 3: Implement Comprehensive Communication
Develop clear communication materials explaining disability coverage to employees. Include simple comparisons showing short-term versus long-term disability features, sample benefit calculations, and claim filing procedures.
Annual enrollment periods provide natural opportunities for benefits education. Consider hosting benefits fairs, providing one-on-one counseling, and distributing written materials employees can review at home with families.
Step 4: Establish Administrative Procedures
Create clear internal procedures for disability claims processing. Designate specific team members as benefits contacts, establish documentation requirements, and develop coordination protocols with insurance carriers.
Many disability claims involve sensitive medical information requiring careful handling. HIPAA compliance, confidentiality protections, and respectful employee communication become critical during disability situations.
Step 5: Partner with Experienced Specialists
International companies rarely have internal expertise managing US disability insurance complexities. Partnering with specialized US expansion providers ensures proper implementation, ongoing compliance, and competitive benefits positioning in American talent markets.
We provide turnkey disability insurance solutions eliminating administrative burden while ensuring employees receive excellent coverage. From initial setup through ongoing claims support, we handle every aspect of disability benefits management for our international clients.
Conclusion: Protecting Your Most Valuable Asset
Your employees represent your most valuable asset in the American market. Comprehensive disability insurance protects these critical team members during life’s most challenging circumstances while demonstrating genuine commitment to their financial security and wellbeing.
Understanding the distinction between short-term and long-term disability insurance enables informed decisions benefiting both employees and business objectives. Short-term coverage provides immediate support during temporary disabilities. Long-term coverage protects against extended or permanent disabilities requiring years of income replacement.
The complexity of US disability insurance—from state-specific mandates to carrier selection to ongoing administration—presents unique challenges for international companies. Between navigating the five states with mandatory coverage, understanding the differences between “own occupation” and “any occupation” definitions, and coordinating with Social Security benefits, disability insurance requires specialized US employment knowledge.
Contact us to discuss your specific disability insurance needs as you expand to the American market.
Frequently Asked Questions About Disability Insurance in the USA
Get answers to all your questions and take the first step towards a US business expansion.
Short-term disability provides income replacement for temporary disabilities lasting weeks to several months with minimal waiting periods. Long-term disability covers extended or permanent disabilities lasting months, years, or until retirement, with longer elimination periods (90-180 days) before benefits begin. Both typically replace 50-70% of pre-disability wages but serve different timeframes and disability severity levels.
Five states mandate short-term disability insurance coverage: California, Hawaii, New Jersey, New York, and Rhode Island. Puerto Rico also has mandatory requirements. These states require employers with employees working in their jurisdictions to provide coverage either through state programs or approved private insurance meeting minimum benefit standards. No states currently mandate long-term disability insurance.
Short-term disability insurance typically costs 0.5-1.5% of covered payroll annually. Long-term disability insurance ranges from 0.3-0.8% of payroll. Actual costs vary based on industry, benefit levels, elimination periods, employee demographics, and whether coverage is employer-paid or contributory. Combined STD and LTD coverage typically totals 1-2% of payroll for comprehensive protection.
Yes, employees can receive both Social Security Disability Insurance (SSDI) and private disability benefits simultaneously. However, most private LTD policies include offset provisions reducing private benefits by SSDI amounts received. Some policies offset fully while others offset partially. Short-term disability usually pays without SSDI offsets since SSDI requires disabilities lasting 12+ months while STD covers temporary conditions.
International companies without US entities can provide disability insurance through Employer of Record (EOR) services. The EOR becomes the legal employer, offering employees access to group disability benefits through the EOR's master policies. This approach provides competitive coverage immediately without entity establishment delays, enabling rapid US market entry while ensuring full benefits compliance.
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