Workers’ Comp VS. Short-Term Disability Insurance: What is the Difference?

As an employee, it’s important to prepare for the worst-case scenarios. Your work is your livelihood, and an injury could jeopardize it. To diminish the impact, you need to be prepared with the right insurance policy. You may wonder whether you need workers’ comp or short-term disability insurance to get the best disability benefits. In this blog, we walk you through the difference between both, mentioning the coverage, benefits, and more.

What is Workers’ Compensation Insurance?

Workers’ comp is a type of business insurance that most employers are required to carry by the government. It provides employees who sustain a work-related injury with compensation for lost wages, medical expenses, and rehabilitation costs.

Who Needs Workers’ Compensation Insurance?

By law in most states, with Texas being an exception, businesses are required to have workers’ comp as soon as they hire their first employee. The rules differ between states. For example, in Florida, a business owner is only required to carry workers’ compensation if they have four or more employees unless they work in the construction industry. In other states, one or more employees are required.

Contractors in the construction industry in most states are required to have workers’ compensation even if they don’t have employees. To sum up, most employers and companies in the United States need workers’ compensation insurance. Whether you’re looking for a small business insurance policy or an enterprise-level insurance policy, workers’ comp is a requirement.

Keep Reading: Do Sole Proprietors Need Workers’ Comp Insurance in Florida?

What are Workers’ Compensation Benefits?

Workers’ compensation benefits both employers and employees. Here’s a breakdown of how it helps.

For Employers

Having workers’ compensation not only helps employers abide by the law, but it also has other benefits. With a workers’ comp insurance policy in place, the employer avoids legal liability, as the injured worker is less likely to sue for the workplace injury or illness.

Moreover, workers’ comp benefits the employers by covering the employee’s income, so the business doesn’t have to pay it. Last but not least, the business having workers’ compensation insurance improves employees’ morale as they know they are protected at their workplace, which promotes a positive work environment and increases productivity.

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For Employees

An injured employee goes through a hard time, knowing that they are unable to work for some time. Not to mention that injuries can be expensive to treat with medical expenses. Workers’ compensation solves all these problems by handling the medical bills, including hospital stays and doctor visits, and lost income.

Workers’ compensation also covers vocational rehabilitation costs, like retraining the injured worker to return to their job after they’ve recovered. If the injured worker passes away because of their injury, workers’ comp offers death benefits to the dependents, including funeral expenses and ongoing financial support.

What Does Workers’ Compensation Cover?

Workers’ comp insurance coverage includes:

Medical expenses: These include medical treatment, doctor’s visits, hospital stays, medications, and therapy.
Lost wages: Workers’ comp covers part of the lost income while the employee recovers.
Rehabilitation: That includes the cost of physical therapy, occupational therapy, and other services needed to help the employee return to work.
Disability benefits: When it comes to workers’ compensation and disability, the insurance company covers ongoing payments as compensation for the loss of earning capacity. That applies to both short-term disability and long-term disability until maximum medical improvement.
Death benefits: In case of death, the injured’s dependents get funeral expenses, burial costs, and a portion of the deceased employee’s lost wages.
Legal fees: If the employee sues their employer for the injury, the insurance company helps the employer with legal assistance costs.

Curious about how much coverage might cost? A workers’ compensation insurance cost calculator can help break it down.

What is Disability Insurance?

Disability insurance is an insurance type that provides income replacement for a policyholder when they are unable to work for a period of time due to an injury or illness.

You can obtain disability insurance from the US government, known as social security disability insurance, which only covers total disability and has a longer elimination period.

Or you can purchase the policy from private insurers with easier conditions. There are two types of disability insurance: short-term disability and long-term disability insurance.

What Is Short-Term Disability Insurance?

Short-term disability (STD) insurance coverage covers an employee’s income if they’re injured for a limited amount of time, from several weeks up to 12 months. The insurance policy covers 40% to 70% of the employee’s income.

Payment for short-term disability starts shortly after the injury, often days or weeks after. The injured employee must provide proof of injury to get short-term disability benefits. Injuries that are covered include surgery, rehabilitation, injury from an accident, or pregnancy.

What Is Long-Term Disability Insurance?

Long-term disability insurance covers the employee for long-term diseases, injury, or illness for a longer period than short-term disability insurance. Coverage can last for years, even up to retirement in some cases. Unlike short-term disability insurance, where coverage starts in days or weeks, long-term disability insurance kicks in after months, following an elimination period.

What is the Difference Between Workers’ Compensation and Short-term Disability Insurance?

The main difference between short-term disability vs. workers’ comp is that workers’ compensation insurance covers work-related injuries, while short-term disability coverage includes all covered injuries, even if they aren’t related to the workplace.

For example, if the employee gets in a car accident during the weekend, they will not be covered by workers’ comp, but they can get short-term disability insurance coverage. On the other hand, an employee who gets a hand injury from typing too much as part of their job can get benefits from filing a workers’ comp claim.

Another main difference between workers’ comp and disability insurance is what they cover. Workers’ compensation insurance covers medical expenses, vocational rehabilitation, and other recovery costs, while disability insurance typically only covers income replacement.

What Pays More, Workers’ Compensation vs. Short-term Disability?

In most cases, workers’ compensation pays more than short-term disability insurance, as workers’ comp covers around two-thirds of the lost wage, while disability insurance covers 40% to 70% which may be taxable.

Overall, workers’ compensation offers more benefits, including medical care costs. That means while employees on disability insurance benefits may have to pay for medical care out of the lost income, those who receive workers’ compensation keep the whole amount.

Can You Apply for Disability While on Workers’ Comp?

You can apply for both workers’ compensation and short-term disability for the same incident. However, you cannot get the full benefits of both policies for the same injury. If your workers’ compensation claim is accepted, you will not receive disability insurance benefits. Still, filing for both comes in handy if your workers’ comp claim is rejected, delayed, or remains under review. You can get disability insurance benefits in these cases until approval for workers’ compensation comes through. If you get short-term disability while workers’ comp, you cannot get the full income replacement.

Disability Insurance VS. Workers’ Compensation FAQs

How can disability insurance money be used?

You can use disability insurance money for anything you need. It is meant to help you maintain your lifestyle even when you can’t work due to your injury.

Can you get workers’ comp and short-term disability?

Yes, you can get both and file for both. However, you can’t get full benefits from both for the same injury.

Is workers’ comp considered disability?

Yes, workers’ comp is considered a type of disability insurance that is more specific to work-related injuries.

What are the downsides of short-term disability insurance?

Short-term disability insurance is taxable, which may be considered a downside if compared to workers’ comp.

What is not covered under short-term disability insurance?

These incidents aren’t covered under short-term disability insurance:

Self-inflicted injury
Conditions that existed before enrollment
Use of non-prescription drugs or illegal substances

Can I get fired if my short-term disability claim is denied?

No, getting denied short-term disability is not grounds for employers to fire you.

Do I have to pay back short-term disability if I quit?

No, you don’t have to pay back short-term disability if you quit your job unless you got paid in advance. However, in some rare cases, the employer might stop paying premiums.

Should I get workers’ comp or short-term disability?

Both short-term disability and workers’ comp are different types of disability insurance. Workers’ comp is for work-related injuries only, while short-term disability covers any injury. If you’re injury is work-related, workers’ comp provides more benefits for you. Also, if you get denied workers’ compensation, you may file for short-term disability instead.

How long do short-term disability benefits last?

Short-term disability benefits usually last from 6 to 12 months.

Does short-term disability insurance affect workers’ comp?

Yes, if you get both, you can’t get full wage replacement from both. Your short-term disability coverage may decrease your payments by the amount you receive from workers’ compensation.

Is short-term disability the same as workers’ compensation insurance?

No. Workers’ compensation is not the same as short-term disability, although both are types of disability insurance. Workers’ comp covers income replacement and medical care for work-related injuries. On the other hand, short-term disability insurance covers income replacement for non-work-related injuries.

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