Disability Insurance: The Coverage Most People Overlook

People insure their cars and homes but rarely think about their single largest asset: their ability to earn a living. Disability insurance replaces part of your income if illness or injury stops you from working, and it is far more likely to be used than life insurance during your career.

Why it matters more than you think

A working person is statistically much more likely to experience a disability lasting several months than to die during their career. For someone decades from retirement, a lost income stream can be more financially devastating than almost any other event, yet disability coverage is the most commonly skipped policy.

Short-term vs. long-term

Short-term disability typically replaces income for a few weeks up to about six months, covering things like surgery recovery or a difficult pregnancy. Long-term disability kicks in after that and can pay for years, even to retirement age, for serious conditions. Long-term is the more important one to secure, because that is the catastrophic scenario.

The definition that matters most: own-occupation

Read how a policy defines "disabled." Own-occupation pays if you cannot perform your specific job, even if you could do some other work. Any-occupation only pays if you cannot do any job at all, a much harder bar to meet. Own-occupation coverage is more expensive but far more valuable, especially for specialized or higher-earning professionals.

How much to get

Policies generally replace 60% to 70% of your income, and that cap exists on purpose to keep an incentive to return to work. Note that if you pay premiums with after-tax dollars, the benefits are usually tax-free, so 60% of income tax-free can be close to your take-home pay.

Employer vs. individual coverage

Group coverage through an employer is convenient and cheap but often limited and not portable, and benefits are taxable if your employer paid the premiums. An individual policy costs more but follows you between jobs and locks in your own-occupation definition. Many people combine a group plan with a supplemental individual policy.

Estimate the coverage you need with our disability insurance calculator.