Having a newborn is one of the most joyous times in a parent’s life. It can also be one of the most challenging. The logistics surrounding a new parent’s return to work after a baby is born can cause significant stress, both emotionally and financially. Fortunately, there are two means by which parents can stay at home with their newborn for an extended period of time: paid family leave vs disability insurance.
The Family Medical Leave Act
The US Department of Labor states: “The Family and Medical Leave Act (FMLA) provides certain employees with up to 12 weeks of unpaid, job-protected leave per year. It also requires that their group health benefits be maintained during the leave.”
The FMLA allows many parents to stay home with newborns, giving them time to bond with their baby and be the ones to care for their infant’s physical and emotional needs during the first days and weeks of their lives. But for many new parents, it’s simply not feasible.
Unfortunately, many new mothers and fathers cannot afford to take this unpaid time off from work. A 2020 Nielsen study found that one in three families earning between $50,000 and $100,000 depend on their next paycheck to keep their heads above water. Similarly, a recent study from GOBankingRates reported that only 48% of Americans have enough savings to last them longer than three weeks.
Paid Family Leave
Few workers in the US are fortunate enough to have an employer that pays them during the twelve weeks of FMLA. According to The National Partnership for Women & Families, only 19% of workers in the United States have access to paid family leave through their employers. Just 40% have access to personal medical leave through employer-provided short-term disability insurance. These are distressing statistics for soon-to-be parents.
However, some employers do provide paid time off for new parents, either by choice or by state mandate. Currently, seven states and the District of Columbia require paid family leave:
- California
- Connecticut
- Massachusetts
- New Jersey
- New York
- Oregon
- Rhode Island
For new parents who have access to paid family leave, it can make all the difference in the world. For those who must make do without it, there’s short-term and long-term disability insurance to consider.
Short-term Disability Insurance
Short-term disability is the best income protection option for normal, healthy pregnancies. By definition, short-term disability insurance policies typically consider childbirth a disabling event. This means giving birth is a reason for a claim being filed with the insurance company to pay a percentage of a worker’s income as consideration for lost wages.
It’s important to note:
- Unlike family leave, the financial benefits received from a disability insurance policy for childbirth are only available to the mother.
- Short-term disability benefits may not last as long as the time off for the FMLA leave of absence.
- Policies commonly pay for six weeks after a normal delivery and eight weeks for a C-section or multiple births.
- The disability period may begin as soon as the day of birth, although a longer waiting period may be selected on the policy.
Sometimes there are complications of pregnancy before birth, and the mother needs to stay at home or be hospitalized in advance of giving birth. For disabilities occurring within 30 days of the due date, payments will be made by the insurer from the time that the mother’s physician deems it necessary that she stop working.
No benefits are payable if staying home before delivery is preferred by the mother before giving birth, but not ordered by a physician.
Long-term Disability Insurance
Long-term disability insurance is the best financial remedy for pregnancies with health complications that may last several months. Long-term disability policies generally consider complications from pregnancy as an approved disability. Long-term disability benefits may begin paying out as soon as 30 days after the day of birth. The length of the benefit period is chosen at the time application is made and can last until retirement.
Someone who is already pregnant can apply for a disability insurance policy. However, pregnancy will be considered a pre-existing condition. If a policy is issued, it will contain an exclusion for any claim related to the pregnancy.
For this reason, obtaining coverage before becoming pregnant is essential.
A disability insurance policy provides the opportunity for a healthy mother to stay home with her newborn child, or it buys time for a new mother who is ill from a pregnancy to recover with pay for an extended period. If coverage is available as an employee benefit, it should be taken advantage of. If it isn’t a benefit available through an employer, coverage is available individually through private insurance companies.
Pregnancy aside, having the protection of a long-term disability insurance policy affords makes good financial sense anyway. The Social Security Administration reports one in four of today’s 20-year-olds will experience a disabling event that prevents them from working for at least one year before reaching retirement age.
Disability Insurance VS Paid Family Leave
Final Thoughts
It’s important for new parents to understand the financial options they have available to them following childbirth. To recap:
- The FMLA may provide up to 12 weeks of unpaid benefits for certain workers.
- Access to paid family leave is on the rise, although it’s still unavailable to many.
- Short-term disability covers normal, healthy pregnancies for working mothers.
- Long-term disability covers pregnancies with health complications for working mothers.
Even if you are fortunate enough to have paid family leave, disability insurance is still a smart investment. It protects you and your family from the financial hardship that can be caused by various types of injuries and illnesses at any point in life.
A licensed insurance agent can explain the disability insurance coverage options available. Together, these benefits can provide financial protection for families following childbirth and long after.
About the Author
Colin Nabity is the CEO and Co-Founder of Breeze, a digital-first insurance company that offers simple, affordable disability insurance for working Americans.
Disability Insurance VS Paid Family Leave — Sources
National Partnership for Women & Families: Paid Leave
U.S. Department of Labor: Family and Medical Leave Act
Marketwatch: A shocking number of Americans are living paycheck to paycheck
The Motley Fool: Nearly 50% of Americans don’t have enough emergency savings to get through the COVID-19 crisis
Council for Disability Awareness: Chances of disability
Breeze: What is disability insurance?; Long term disability insurance