How to Manage Your Finances While on Short Term Disability

Northwestern Mutual: Managing your finances on short term disability can be trickier than it seems because many people don't realize their earnings on short term disability are not the same as what they earn in their usual paycheck. With proper planning and coverage, however, your earnings on short term disability could be close to your usual wages and keep you financially stable throughout recovery.  

The key things to understand are when will you be paid, how much will you receive, and is short term disability income taxable? (Be sure to know if your premiums are tax-deductible and whether or not taxes will be taken out of any payments you receive.) 

Can you survive on short term disability earnings? 

This is the first and fundamental question you'll want to answer. If you live on a tight budget or don't have sufficient emergency savings, reducing your income while you're recovering from an accident or illness is going to be difficult. You don't want to find yourself in a situation where you have to reduce your expenses, sell wanted items or take on unwanted debt.  
 
This is how additional insurance can cover you, even if you're in the process of building savings or living paycheck to paycheck. It's hard to imagine trying to put a financial solution together last-minute and while you're recovering — better to put your protection plan together while you're healthy and employed.  

Does my employer provide short term disability?  

Many employers provide some form of short term disability, but you may find gaps in coverage that you'll want additional insurance to help with. It's not uncommon to have multiple policies for short term disability so that you can have adequate coverage, just be careful that your total premiums stay manageable. 

Are there any gaps that I might need covered by additional insurance? 

No matter what disability policy you have, there's a chance it doesn't cover everything or it doesn't cover enough.  

Know the wait period 

If you only have long term disability coverage through your employer, you're likely to deal with a wait period. Also known as an elimination period, the wait period will typically range from 30 to 90 days. That means you won't have access to any payments unless you can use sick time or PTO during that period. Many people choose to purchase additional insurance in order to cover these periods, which is where short term disability can be useful. 

Tax effects 

Will taxes be taken out of your short term disability earnings? In most cases, the short term disability earnings you get from a policy from your employer will have taxes taken out, but you can pay for the premium with pre-tax dollars. When you buy private insurance, the premium is not tax-deductible, but the earnings will not have taxes taken out.  

The bottom line 

The best time to plan for disability is when you're healthy and employed. The last thing you want to do is try to figure this out while you're recovering. Be sure to get full disclosure of any terms and conditions for your short term disability policy. When you need the coverage, you won't want any confusion and you want to be able to get your benefits as quickly as possible.  

Disability income insurance policies contain some contractual features and optional benefits that may not available in all states. The ability to perform the substantial and material duties of your occupation is only one of the factors that determine eligibility for disability benefits. These policies also contain exclusions, limitations and reduction of benefit provisions. Eligibility for disability income insurance, additional policy benefits and qualification for benefits is determined on a case-by-case basis. For costs and complete details of coverage, please contact a Northwestern Mutual Financial representative. 

Northwestern Mutual is the marketing name for The Northwestern Mutual Life Insurance Company, Milwaukee, WI (NM) (life insurance, disability insurance, annuities, and life insurance with long-term care benefits). 

To be used with form ICC16.TT.DI.IIB.(0916), ICC16.TT.DI.FIB.(0916), ICC16.TT.DI.CAT.(0916), ICC16.TT.NCDI.(0916), ICC16.TT.GRDI.(0916), ICC16.TT.DI.PDB.(0916), ICC16.TT.DI.PDBO.(0916) ICC16.TT.DI.TRU.(0916), ICC16.TT.DI.MED.(0916), ICC16.TT.DI.TRA.(0916), ICC16.TT.DI.PDBO.(0916) or state equivalent. Not all contracts and optional benefits available in all states.  

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