Disability Insurance Overview

Do I Even Need Disability Insurance?

Let’s face it; everyone works hard and spends years mastering the skills needed to earn a living.

From completing specialized education, qualifying interviews, negotiating stipends, to endeavoring to earn promotions, we do everything to prove ourselves as a dedicated worker and an indispensable employee.  

But what if you somehow lose your ability to work due to an illness, accident, or any other reason?   What if you become unproductive or unable to work again?  How will you pay your rent, utility bills, and a mortgage? 

No matter how difficult it may seem to envision these possibilities or answer these questions, you should consider these possibilities. We say this because more than one in four individuals becomes disabled before the age of 65, as per the fact sheet of the Social Security Administration.

Needless to say that the ability to work or earn money is the most significant asset anyone can have. Your life depends on it in one way or another. This is where the role of disability insurance comes into play. It can help you maintain your living standards and get through financial hardships.

 Investing in disability insurance is not the same as purchasing auto insurance.  It even differs from social security disability insurance in many ways. Let’s plunge into the details to determine everything you need to know about disability insurance. 

Disability Insurance- An Overview 

Disability insurance typically pays you back a portion of your income in case of injury or ailment that prevents you from working. The healthier and younger you are, the easier it is to obtain this type of insurance. This is because your premium also increases with your age. If an illness has already disrupted your ability to work, it is not likely you will qualify for a reasonable policy. This is why it is best to have this type of insurance in place before you need it.

Note that disability insurance is not intended for accidents. It is intended to help with claims related to disabilities caused from cancer, physical injuries, heart attacks, and more. These types of emergencies or disabilities can also occur in the workplace however, there also exists accident insurance. 

Is Employer Offered Disability Insurance Sufficient?

Many people believe that their workplace disability insurance policy is enough to protect them from unfortunate situations. For some this may be true but failing to understand the tax implications of employer-offered policies is not wise. 

Most of the employer-sponsored plans depend on how the company defines “disability,” which may vary.  According to financial advisors and experts, the definition of disability has various versions.  For some businesses, it is a state when an employee is unable to perform his/her current duties and needs a portion of salary to meet the ends. Typically, this plan requires higher premium payments.  For others, it may mean that the insurer will cover you regardless of the type of job you do or you’re trained for.  

So, if you’re a surgeon and break your wrist, you can claim disability insurance benefits under “your occupation.” It is because you can’t perform delicate surgical procedures without using your hands. But at the same time, you may qualify for “any occupation” as you can lecture at a university or maybe edit reports and medical journals without using your both hands.

It is worth mentioning that if an employer or company pays for the disability insurance premiums, the employee needs to pay taxes received on those payments.  This tax liability may have a significant financial impact if an employee qualifies for a plan’s payout.  Because of this potential tax liability, it is better to pay for disability benefits based on after-tax.

Determining how the disability policy you sign up defines the earnings it aims to cover is crucial.

Consider the things like; 

  • Insurance coverage on basic pay
  • Inclusion of previous and current year bonuses
  • Commission on your salary

Remember that if your potential insurance payment is not sufficient for your family’s needs, you might want to buy additional insurance.

How Will I Know if I Need Disability Insurance? 

To determine this, ask yourself these two questions;

  • Does my family rely on my income? 
  • Do I have sufficient savings to financially survive for years or even months without getting a paycheck?

If the answers are not satisfactory, you should consider purchasing disability insurance.  You need disability insurance to protect your assets if you lose your income source due to any disability. There are many cases in which people are not able to pay bills, feed or support their families.  

Still unsure why you need disability insurance?  

Consider these reasons;  

  • Over 25% of workers in America go through a long-term disability which is longer than two months in their professional careers.
  • 70% of workers don’t have long-term disability insurance.
  • 62% of bankruptcies in the US and more than 50% of mortgage foreclosures happen because of injury or illness-related issues.

If you associate disability insurance with accidents that are common only in dangerous jobs and think that you are not at risk, you’re mistaken. The truth is; more than 90% of long-term disabilities are the result of illness. That means you can be at risk regardless of the nature of your job.  

Even the professions like engineers, lawyers, and doctors require disability insurance.  As a significant amount of investment goes into their education, they may benefit from disability insurance coverage.  

If you don’t opt for disability insurance, you might not be able to pay for your everyday expenses, utility bills, and fulfill your financial plans for future.  This type of insurance covers you during hard times and helps you protect your valuable assets.  As the insurance policy covers your earning aptitude, it should be a part of your financial safety plan.


Types of Disability Insurance

Once you know you may need disability insurance, decide what type of disability insurance will work for you. You may get a similar kind of protection from different employers under various circumstances, but you need to choose the one that fits your financial plan.   

The most commonly available options include; 

  • Long-term disability insurance
  • Short-term disability insurance

Long-Term Disability Insurance  

Long-term disability insurance is the most sought after type of policy. Many people consider a long-term disability insurance policy to protect income. This kind of disability insurance offers coverage for two years if you’re hurt or not able to work.  The insurance plan remains valid until your retirement.  

The feature that makes long-term disability insurance stand out is that it has distributed tax-free benefits. That means you can use the policy for whatever you need it for.  It allows you to use it as you need to manage your financial burden. 

Moreover, a long-term disability policy is an inexpensive form of protection you can obtain. It not only offers the best coverage length, cost, ease-to-qualify but also benefits received.  There is no other disability insurance that gives you the most of your payment plan. 

Short-Term Disability Insurance

You can opt for a short-term disability policy if you think you will recover within months. As the title implies, the short-term policy covers you for four to six months. The maximum coverage limit for this kind of disability insurance is 36 months. 

The monthly premium you pay for short-term disability insurance is close to the amount you pay for long-term disability insurance. As you get relatively better coverage with long-term disability insurance, buying it rather than a short-term insurance plan makes more sense. 

Buying a long-term disability insurance plan is easier than a short-term plan. Many insurers offer long-term plans, whereas you may get fewer options for purchasing a private short-term disability plan. Some companies over subsidize short-term plans to make them more cost-effective. If you get this option from your employers, considering it is a good idea.

Short-term disability may complement long-term disability by covering you before its benefits kick in. However, if you pay for the entire premium yourself, it is not worth the time and cost.

What Other Disability Insurance Alternatives Do I Have? 

While long-term disability insurance makes a better choice, a short-term plan works in the right scenarios and circumstances. If you don’t want to opt for either of them, you might want to consider purchasing another disability insurance plan.  However, make sure you’re aware of these forms of insurance plans, as they often don’t protect people in the long run.  

Workers’ Compensation

Many employers offer worker’s compensation to their employees to cover disabilities that occurred on the job. That means that it benefits only specific incidents, and you should not rely on it for comprehensive coverage.  You should also go through the qualification guidelines before choosing this form of disability insurance. 

Social Security Disability Insurance

Social security disability insurance is another popular alternative to a private disability plan. Although it is a standard option, it comes with several limitations. To qualify for a social security disability plan, you must prove you are completely unable to work. That means if you’re able enough to perform even half of your duties in your workplace, you’re not eligible for SSD insurance. 

Don’t forget to count in the time and appeals SSD requires to kick in the benefits even after you qualify. The benefit amount you get to cover is relatively low. 

How Much Disability Insurance Do I Need

Once you determine that you need to purchase disability insurance and most likely it is a long-term disability plan, the next important thing you need to decide is “how much you need insurance you need.”

 It is better to consider three things to determine how much protection or coverage you need.  

Coverage Amount 

You get 60 percent of your salary as a coverage amount in long-disability insurance. This coverage amount is 80 percent in short-term disability insurance. SSDI, on the other hand, pays up to $1200 a month. Typically, your insurance benefits should cover immediate expenses and bills when you’re unable to earn. You should also take long-term plans and savings such as retirement into account when evaluating coverage amount.


The next important aspect is the duration that disability insurance offers. An average disability plan lasts for three to four years. Five-year is the minimum duration that a long-term insurance policy covers for. You should opt for an insurance plan that lasts until your retirement plan and provides you the maximum protection. It is not much costlier than a standard five-year policy. 

When you determine the duration of the benefit period, make sure you know when they begin. This is commonly referred to as elimination or waiting period.  Usually, you get ninety days as the most cost-effective elimination period. 


The disability insurance amount you choose depends on the plan you can afford.  Duration and coverage amount are the two crucial factors that determine the cost. Other factors like gender, health, and age also play an essential role in figuring out the cost.

However, people generally have to pay 3 percent of their yearly earnings on disability insurance. Worker’s compensation and SSD are free, whereas employer-sponsor disability has subsidized benefits.  When opting for other forms of insurance plans, make sure to factor in limitations, indirect costs, and qualification requirements. 

How Can I Get Disability Insurance? 

It is best to start by finding out if your workplace or company offers a disability insurance plan.  If it doesn’t, you can always consult an insurance professional. Only a qualified insurance expert can guide you through the policies and help you obtain the one that suits your specific situation. 

Keep in mind that dealing with an injury and illness is traumatic and overwhelming. It is especially true if you don’t have the right insurance coverage to pay your bills. That is why you need to protect your family by purchasing long-term disability insurance.  

Summing Up

All in all, a disability insurance plan is critical to keep your family’s future secured. It pays you back by replacing a portion of your salary. It is a common perk many employers and companies offer to their workers. Thus, a disability insurance plan is not there to increase your wealth; it is there to help you pay your bills or other expenses if something terrible happens.

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