Short Term Disability (STD) is a benefit program intended to provide income replacement when an employee is temporarily unable to work due to a non-work-related injury or illness. The question of whether one can resign while receiving these payments is common for individuals considering a career change or seeking to focus solely on recovery. While resignation is legally permissible, the actual continuation of income benefits and the status of other employment-related coverages are highly dependent on the specifics of the insurance policy and relevant state laws. Understanding the mechanics of how employment status interacts with group insurance is the first step in navigating this complex decision.
The Relationship Between Employment Status and Short Term Disability Coverage
Most Short Term Disability plans are structured as group insurance policies sponsored by the employer. These policies are designed to cover individuals who meet the definition of an “active employee” or are on an approved, employer-sanctioned leave of absence. The employer facilitates the coverage, but the insurance company ultimately administers the claim and makes the payment.
An approved disability leave functions as a temporary exception to the active employment requirement, allowing the benefit to pay while the individual is away from work. Resignation, however, fundamentally changes this status by severing the employment relationship that underpins the group coverage. Group policies generally contain specific language stating that coverage ceases on the date the employee terminates their employment with the sponsoring organization. The policy must be carefully reviewed to determine the exact impact of resignation on the continuation of benefits once a claim has already been approved.
Does Resigning Immediately Stop Short Term Disability Payments?
Resigning from employment while receiving Short Term Disability income replacement does not typically cause an immediate cessation of the payments. The defining factor for continued eligibility is whether the qualifying disability occurred and was approved while the individual was still an active, covered employee. Once the insurance carrier has accepted the claim and started payments, the benefit obligation is generally considered incurred under the terms of the policy.
Most standard group disability policies contain a provision that allows payments to continue for a claim that was incurred prior to the termination of employment. The payments are then scheduled to run for the full duration of the approved disability period. This continuation is contingent on the individual continuing to meet the medical definition of disabled as defined in the policy. The income replacement benefit will continue until the doctor releases the individual to return to work or the maximum benefit period, typically 9 to 26 weeks, is reached.
The continuity of payments is not guaranteed in all situations, particularly with certain self-funded employer plans or unique private policies that may impose stricter limitations. It is imperative to obtain the Summary Plan Description (SPD) or the official policy document from the human resources department or the carrier before submitting a resignation. The language in the SPD will explicitly detail the terms under which an approved claim will continue to be paid following the termination of employment.
If the resignation occurs before the claim is approved, the situation becomes significantly more precarious, as the claim might be denied because the individual is no longer an employee at the time of the final coverage determination. Even when the claim is approved, the individual must continue submitting medical documentation to the carrier as scheduled to prove they remain medically unable to perform the duties of their former job. Failure to comply with the carrier’s ongoing administrative requirements will result in the immediate termination of the benefit, regardless of employment status.
Managing Health Insurance and COBRA After Resignation
While the income replacement benefit may continue following resignation, the employer-sponsored group health insurance coverage typically terminates much sooner. Most company health plans cease coverage on the last day of the month in which the resignation becomes effective, even if the individual remains on approved disability leave. This gap in medical coverage is often the most significant financial concern when considering resignation.
The Consolidated Omnibus Budget Reconciliation Act (COBRA) provides a mechanism for former employees to maintain their group health coverage for a limited time. Resignation qualifies as a “qualifying event” under COBRA, making the individual eligible to elect continuation coverage for up to 18 months. Electing COBRA allows the individual to keep the exact same medical plan they had while employed, which is especially important when undergoing ongoing medical treatment.
The major drawback to COBRA is the cost, as the former employee must pay the entire premium. When employed, the employer subsidizes a significant portion of the premium, but under COBRA, the individual pays 100% of the calculated cost, plus a small administrative fee, often totaling 102% of the premium. For smaller employers not subject to federal COBRA regulations, state-level “mini-COBRA” laws may offer similar continuation rights, making it necessary to check state statutes based on the employer’s location.
Final Pay and Accrued Benefit Payouts
Upon resignation, the former employee is entitled to receive a final paycheck covering all wages earned up to the effective date of termination. This includes payment for any work performed immediately before the disability leave began or during any partial return to work. The handling of accrued paid time off (PTO), sick time, and vacation time in this final payment is heavily regulated by state law, not federal statute.
Many states require employers to pay out the monetary value of any accrued, unused vacation time upon separation, treating it as earned wages. However, the rules for sick time are generally less uniform, and many states do not mandate the payout of unused sick leave balances. Before resigning, individuals should consult their state’s labor department guidelines and review the specific company policy to accurately project the size of the final accrued benefit payout.
FMLA and Other Legal Protections When Resigning
If the employee’s disability leave was covered concurrently by the Family and Medical Leave Act (FMLA), resignation immediately terminates the protection offered by that federal law. The FMLA provides eligible employees with the right to job restoration to the same or an equivalent position upon their return from leave. By choosing to resign, the employee voluntarily forfeits this primary benefit of the FMLA, effectively releasing the employer from any further obligation to maintain the position.
It is important to remember that FMLA is a job protection statute, separate from the income replacement provided by Short Term Disability insurance. While the STD benefit may continue after resignation, the FMLA clock stops ticking, and the employer is no longer obligated to hold the position open. Since the employee initiates the separation, legal protections concerning wrongful termination or retaliation are generally not applicable, as the separation is voluntary. The decision to resign must be made with the understanding that the right to return to the former position is permanently relinquished.
Practical Steps for Resigning While on Disability
A systematic approach minimizes risk when resigning while receiving Short Term Disability benefits. The first and most important step is to secure and meticulously review the Summary Plan Description (SPD) from the HR department to confirm the exact language regarding benefit continuation after termination. This document dictates the continuation rules, overriding verbal assurances.
The employee must then formally notify both the employer’s Human Resources department of the resignation and the third-party disability carrier of the change in employment status. The notification to the carrier should be separate from the resignation letter to the employer. Request written confirmation from the carrier that the approved claim will continue to be paid until the end of the approved period despite the change in employment status. Finally, potential COBRA costs and the election deadline must be calculated against the expected financial runway before submitting the resignation.