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A business owner is evaluating a disability income policy for their key employees. They want a policy that will provide a benefit for a short period if an employee is temporarily unable to work due to illness or injury, but not necessarily for a long-term or permanent disability. Which type of disability income policy would best suit this need?
- AAccidental Death and Dismemberment (AD&D)
- BLong-Term Disability (LTD)
- CWorkers' Compensation
- DShort-Term Disability (STD)
Show answer & explanationAnswer & explanation
Correct answer: D. Short-Term Disability (STD)
Short-Term Disability (STD) policies are designed to replace a portion of an employee's income for a limited period, typically 3 to 6 months, when they are temporarily unable to work due to a non-work-related illness or injury.
Why the other options are wrong
- A. AD&D policies pay a benefit only for accidental death or loss of body parts, not for income replacement due to illness or injury.
- B. LTD policies cover disabilities lasting longer, often years or until retirement.
- C. Workers' Compensation covers disabilities resulting from work-related injuries or illnesses, not general non-work-related disabilities.
Short-Term Disability (STD)
An insurance policy that provides income replacement for a limited period (e.g., 3-6 months) if an insured is temporarily unable to work due to non-work-related illness or injury.
- Benefits typically begin after a short elimination period (e.g., 7-14 days).
- Replaces a percentage of income (e.g., 60-70%).
- Often employer-sponsored.
Memory trick: Short-Term Disability covers short-term breaks from work.