Welcome to ThreeFlow's benefit breakdown series, where we dive into the details of a coverage and discuss the most recent trends with the help of ThreeFlow's data and benefits experts.

We talked with underwriting operations manager Kyle Morrison to help us break down short-term disability (STD). With over seven years of experience as an underwriter, he knows the ins and outs of STD coverage and options.

At a high level, what does STD cover?

STD provides financial benefits to employees who can’t work due to an accident, illness, or injury. It can replace a portion of your income during the initial weeks of your disability once you have satisfied an elimination period. 

An elimination period is the amount of time an insured must be disabled before any benefits are payable. These are commonly seven days, but it could be up to 180 days in rare cases. 

It's important to note that STD is considered non-occupational coverage, meaning it doesn’t cover injuries that occur while working. The intent of an STD policy is to fill the gap where workers' compensation coverage does not. 

How do STD policies define a disability?

Similar to long-term disability (LTD), there are three major definitions of disability in STD policies: 'and,' 'or,' and 'duties only.'

  • 'And' definitions require both a loss in earnings and duties to be considered disabled.
  • 'Or' definitions allow you to be considered disabled from a loss in earnings or just a loss in duties.
  • A 'duties only' definition is the most simple definition, and carriers that use it probably assume that a loss in duties comes from a loss in earnings.

Based on our data, the most common definition is an "And" definition, occurring in 74% of groups. We see "Or" and "Duties only" definitions each in about 13% of groups. Because it takes a higher threshold to be considered disabled with the ‘And’ definition, most carriers prefer it to help with claims management.

When do STD benefits end and LTD benefits begin?

Short-term disability generally provides income replacement for 13 or 26 weeks (90 and 180 days, respectively). These durations align with a long-term disability plan's elimination period of 90 or 180 days. Brokers should pay attention to these durations to ensure no income gap when a claim transitions from STD to LTD, assuming the employer offers both programs. 

We see groups quoted with a 13-week duration about 57% of the time, 30% have a 26-week duration, and 13% have other durations. Longer durations tend to have higher premiums, so it's ultimately up to the employer group to decide which plan best fits their budget and employees' interests. 

What other factors should be taken into account when choosing an STD policy?

It's essential to include experience reports when marketing STD. Underwriters see past claims experience as being indicative of future performance. This is especially true for STD as it tends to have a higher incidence than other life and disability products. In addition, most carriers will require experience to price STD on employer groups that employ 100 or more employees.

Want to learn more about ThreeFlow's underwriting consulting capabilities? Request a demo today. And stay tuned for more of our Benefit Breakdown series, where we'll dive into a particular line of coverage and discuss what ThreeFlow's data shows on trends.


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