Disability Insurance
Income replacement if you become unable to work due to illness or injury.
Typical cost: $1,000 – $4,000 per year
What Is Disability Insurance?
Disability insurance pays a monthly benefit—typically 50-70% of your pre-disability earnings—if illness or injury prevents you from working. Your earning power is your most valuable asset, and more than one in four 20-year-olds will become disabled before retirement.
Short-Term vs. Long-Term
Short-term disability covers the first 3-6 months. Long-term disability kicks in afterward and can pay benefits for years or until age 65. Financial advisors prioritize long-term coverage as extended disabilities pose the greatest threat.
Own-Occupation vs. Any-Occupation
Own-occupation policies pay if you can't perform your specific job. Any-occupation policies only pay if you can't perform any job you're qualified for. Own-occupation is more expensive but far more protective, especially for specialized professionals.
What's covered
Monthly Benefits
Pays 50-70% of pre-disability income monthly while you're unable to work.
Short-Term Coverage
Benefits for the first 3-6 months after a brief elimination period.
Long-Term Coverage
Extended income replacement lasting years or until retirement age.
Own-Occupation
Pays if you can't perform your specific occupation's duties.
Cost-of-Living Adjustment
Optional rider increasing benefits annually to keep pace with inflation.
Residual Disability
Proportional benefits if you can work part-time at reduced capacity.
Pros and cons
Advantages
- Protects your most valuable asset—your earning ability
- Monthly benefits maintain your standard of living
- Own-occupation protects specialized professionals
- Employer group plans are often free or subsidized
- Individual policies are portable across jobs
- COLA riders keep benefits aligned with inflation
Considerations
- Individual policies require medical underwriting
- Elimination periods mean no benefits initially
- Any-occupation definitions are restrictive
- Benefits are taxable if employer pays premiums
- Pre-existing condition exclusions may apply
- Mental health benefits may be limited to 24 months
Frequently asked questions
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