GuidesRisk protection7 min read

Disability insurance explained, and how much you need

Your income is the asset that pays for every other asset. Disability insurance is the policy most households skip and most regret skipping.

What it actually covers

Disability insurance replaces part of your income when illness or injury stops you from working. Short-term policies cover weeks to months; long-term policies cover years or to retirement age.

Short-term: typically 3 to 6 months, often employer provided
Long-term: begins after the short-term period ends and matters most
Benefits are usually 50 to 70 percent of income, not all of it

The two definitions that decide whether you get paid

Read the definition of disability before you read the price. It determines the outcome more than any other term.

Own occupation: pays if you cannot do your specific job. Stronger and more expensive
Any occupation: pays only if you cannot do any reasonable work. Cheaper and much harder to claim
Residual or partial benefits pay when you can work reduced hours

Sizing your coverage

Start from essential monthly costs, not gross salary, and subtract benefits you would already receive.

Add up essential monthly household costs
Subtract any employer coverage and government benefit you would qualify for
Insure the gap, and remember that benefits paid from post-tax premiums are usually tax free

Terms worth paying for

A few riders change how useful the policy is over decades.

Elimination period matched to your cash buffer, commonly 90 days
Benefit period to age 65 or 67 rather than a short two-year term
Non-cancellable and guaranteed renewable, so premiums cannot rise
Inflation adjustment on benefits, and future purchase options if your income grows

Common questions

Is employer disability insurance enough?

Often not. Group coverage tends to use a stricter definition of disability, caps benefits, is taxable when the employer pays premiums, and ends when the job ends.

How much does disability insurance cost?

Individual long-term coverage commonly costs 1 to 3 percent of annual income, varying by age, health, occupation, and the terms you select.

Do I need disability insurance if I have savings?

Savings cover weeks, not years. Disability insurance exists for the long event that would otherwise drain everything you have built.

See where your household stands

The Household Resilience Check scores this dimension along with seven others in about five minutes.

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