Disability Insurance: The Coverage Most People Forget (And Why You Need It)

insurance 2026-02-27 · 5 min read disability insurance income protection long-term disability short-term disability insurance basics

Most people insure their car, their home, and their life — but leave their income completely unprotected. If you can't work for an extended period due to illness or injury, how would you pay your bills?

According to the Social Security Administration, more than 1 in 4 of today's 20-year-olds will experience a disability that prevents them from working for 90 days or more before they retire. Disability insurance pays you a portion of your income if you become unable to work.

Short-Term vs. Long-Term Disability Insurance

Short-Term Disability (STD)

Covers you for a short period — typically 3 to 6 months — after an elimination period (waiting period) of 0 to 14 days.

Used for: recovery from surgery, serious illness, pregnancy and childbirth complications, workplace injuries (short recovery).

Many employers provide short-term disability as a benefit. Some states also require it (California, New York, New Jersey, Hawaii, Rhode Island, and Puerto Rico have state disability programs).

Long-Term Disability (LTD)

Covers you for extended periods — from 2 years to the rest of your career — after a longer elimination period (typically 90 days). This is the more critical coverage.

LTD kicks in when your short-term disability ends. If you develop a serious chronic illness, have a serious accident, or face any condition preventing you from working for months or years, LTD is what replaces your income.

What Disability Insurance Covers

A typical LTD policy:

Replaces 60-70% of your gross income
Begins after the elimination period (90 days is standard)
Pays benefits for the benefit period (typically to age 65 or for 5 years)
Has a definition of disability (own occupation vs. any occupation — see below)

What triggers benefits: You must meet the policy's definition of disability (unable to perform your job or any job, depending on the policy). Physical injuries, mental health conditions, cancer, heart disease, and chronic conditions all qualify with the right policy.

The Most Critical Policy Feature: Definition of Disability

Own-occupation disability (True own-occ): You're considered disabled if you can't do the specific work of your own occupation, even if you could work in some other field. A surgeon who loses the ability to operate but could still practice non-surgical medicine would receive full benefits under true own-occ.

Any-occupation disability: You're only considered disabled if you can't do any work for which you're reasonably suited by education or experience. Much more restrictive — a surgeon who can't operate but could still teach medicine might not qualify.

Most employer-provided policies use any-occupation or a hybrid definition. Individual policies for professionals often offer true own-occ, which is more valuable.

Group (Employer) Coverage vs. Individual Policies

Employer-Provided LTD

Many employers offer LTD coverage, often at low or no cost.

Pros:

Low or no cost to you
No medical underwriting (you can get coverage regardless of pre-existing conditions)
Easy enrollment

Cons:

Usually only 60% of base salary (bonuses and commissions often excluded)
Often any-occupation definition after 2 years
Coverage ends when you leave the job — you can't take it with you
Benefits may be taxable (if the employer paid the premium)

Individual LTD Policy

Purchased independently, stays with you regardless of employment.

Pros:

Portable — coverage follows you between jobs
Own-occupation definitions available
Non-taxable benefits (you pay premiums after-tax)
Can be customized with riders

Cons:

Requires medical underwriting
More expensive than group coverage
Pre-existing conditions may be excluded or rated

How Much Disability Coverage Do You Need?

The goal is to replace enough income to cover your essential expenses without depleting savings.

A rough target: enough to cover your fixed monthly expenses (mortgage/rent, utilities, food, loan payments, insurance premiums) plus a buffer.

If you have employer LTD at 60% of salary and your expenses can be managed on that amount, additional coverage may not be necessary. If your expenses are close to your full income, or you're self-employed with no employer coverage, a larger individual policy may be warranted.

What It Costs

Individual LTD policies typically cost 1-3% of your annual income.

For a 35-year-old earning $80,000/year:

A policy paying $4,000/month through age 65 with a 90-day elimination period: approximately $1,200-$2,400/year

Factors that affect price:

Age (younger = cheaper)
Health status
Occupation (physical jobs cost more to insure)
Benefit amount and period
Elimination period (longer waiting = lower premium)
Definition of disability (own-occ costs more)

When to Get Disability Insurance

As soon as you start working seriously: Disability insurance gets more expensive as you age and if your health deteriorates. Getting coverage while you're young and healthy is the cheapest option.

Before you have a health event: Most individual policies require underwriting. If you develop diabetes, a heart condition, or a mental health diagnosis before applying, you may pay more or have exclusions.

If self-employed: You have no employer coverage and no Social Security Disability Income to rely on (you'd need to meet a very strict standard and wait 5 months). Individual disability insurance is even more important for self-employed professionals.

Social Security Disability Insurance (SSDI)

SSDI provides benefits to disabled workers who have paid into Social Security, but:

The standard is strict: you must be unable to perform any substantial gainful activity due to a condition expected to last at least 12 months
Average benefit is about $1,537/month (2024) — far less than most people's income
Average wait from application to first payment: 3+ years
About 67% of initial applications are denied

SSDI is a safety net, not a replacement for disability insurance.

How to Buy Disability Insurance

For employees: Check if your employer offers a voluntary LTD upgrade or individual supplemental coverage through a payroll deduction. This is often cheaper than buying privately because of group pricing and no medical underwriting.

For self-employed and professionals: Work with an independent insurance broker who can quote multiple carriers (Guardian, Principal, Mutual of Omaha, MassMutual, and Ameritas are top LTD providers). Comparing quotes is important — prices vary significantly.

For those who can't afford individual coverage: Ensure you're maximizing whatever employer group coverage is available. Building a larger emergency fund (6-12 months of expenses) provides some self-insurance capability.

Employer Coverage as a Starting Point

If your employer offers group LTD, enroll even if it's not perfect. 60% of salary through any-occupation coverage is far better than nothing.

Then evaluate whether your specific situation warrants supplemental individual coverage. Professionals with specialized skills (doctors, lawyers, engineers, pilots) often have the most to gain from own-occupation individual policies, since their earning potential is tied to specific capabilities.

Disability insurance isn't exciting, but losing your income for months or years is financially devastating in a way that no other financial product protects against.