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How does short term disability work?

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Assuming that you are referring to short term disability insurance, it is intended to replace income when the insured is unable to work due to an injury or medical condition that is not excluded by the terms of the policy.

The reference to "short-term" distinguishes the coverage from long-term disability, which, assuming conditions are met, can have payments that last for years. Short-term disability policies ordinarily provide benefits from anywhere between 60 days to a year or so.

Many employers offer short-term disability coverage as a benefit of employment. The amount of the benefit is usually based upon the employee's earnings at the time of disability. It also usually declines over the term that benefits are paid; for example, it may pay 100% of lost income for the first month or so, and then slowly decline toward the end of the term.

Short term disability plans can also be privately purchased from insurers. Like many other forms of insurance, these kinds of policies may be "medically underwritten", meaning that whether or not an applicant qualifies will depend upon health history. Likewise, the insurer will be interested in earnings history, because the purpose of the coverage is to replace income, not to be a money-making proposition for the insured.

It is very important to ensure that any insurance that is purchased is issued from a licensed insurer (sometimes called an "authorized" insurer), and that the insurer is authorized to issue insurance in your state. This information can be obtained through the office of the state insurance regulator in the capitol. Be sure to find out from the agent/insurer the name of the entity that is financially responsible for the payment of claims, as it is that entity that must be licensed. A product name that sounds familiar is not sufficient and is not a guaranty.
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