Introduction to Disability Insurance – You Need it More Than You Think You Do

by Emily Guy Birken

The numbers are staggering. According to the Council for Disability Awareness (CDA) “over one in four of today’s 20-year-olds will become disabled before they retire.” The average length of disability is a frighteningly long 31.2 months.

But despite these statistics, many individuals—as many as 67% of private sector workers according to the CDA —have a big hole in their financial planning: a lack of disability insurance.

Here is what you need to know about disability insurance to make certain that you will be covered if you are unable to work.

introduction to disability insurance

Disability insurance is more important than you think

1. Disability insurance covers a portion of your income. Generally, you can expect to see about 60% of your lost income through disability benefits. While it is possible to purchase additional policies in order to increase that percentage, you will not be able to replace all of your lost income. After all, insurers want to see that you have an incentive to get back to work.

Even if you are covered with disability insurance, it’s important that you also keep your emergency fund healthy. Together, they should be able to help you financially weather a disability claim.

2. All workers need disability insurance. The commonly held belief about disability insurance is that most disabilities are caused by accidents. It can be easy to think that working in an office environment means that you are immune to the sorts of issues that can cause you to become disabled. But most long-term absences from work are caused by illness, like pneumonia, cancer, or heart disease. So even if the most strenuous thing you do at work is operate the copy machine, you still need to have disability insurance.

3. Disability insurance through your employer does not necessarily cover as much as you might need. While most workers get their disability insurance through their employers, it’s important to remember that this might not be enough coverage. This is because most employers only offer short-term disability insurance, which will only cover you for up to five or ten years. If you find yourself permanently disabled, this will not be enough and it is recommended you look into a long-term disability insurance policy.

The other potential issue with employer-provided coverage comes when the employer is paying your premiums. When they do that, you are responsible for paying the taxes on the benefits. You will need to determine if your benefits minus the taxes will cover enough of your income for you and your family to get by. If not, plan on getting supplemental coverage.

4. If you cannot get insurance through your job, there are other options. If you are a member of a professional association, you often have the opportunity to purchase a policy through a group plan. This generally means that you do not need to worry about underwriting for pre-existing conditions, and that your premiums may be lower than if you purchase an individual policy. However, if you leave the profession, you may not be able to keep your coverage.

Buying an individual policy will be more expensive than getting your disability insurance through work and a group plan, but it does give you the opportunity to shop around to several different insurers.

5. Make sure you get “own occupation” disability insurance. There are some policies that are known as “any occupation.” This means that in order for you to see benefits, you need to be unable to do any work at all. But an “own occupation” policy will pay you benefits if you are unable to do the job you trained for, even if you could technically still be running a cashier or greeting customers at the local big box store.

6. If you are purchasing your own policy, remember that not everyone can easily qualify. Just like other insurance policies, disability insurance will often include a medical exclusion rider for any pre-existing conditions you have. For example, if you have a history of back problems, you should be able to get a disability insurance policy that covers any other disability—but the policy will not cover your lost income if it is your back that causes you to miss work. That said, it is important to be covered, even if you have a pre-existing condition. (some plans will cover pre-existing conditions, but only with

It can also be somewhat difficult to find a policy depending on your occupation. Both the self-employed and those who work in potentially risky jobs (like construction or factory work) will have more trouble convincing an insurance company to underwrite them. It is not impossible, however. Freelancers, consultants and small business owners will often have to provide at least three years of income records on order to find an insurer, as income can otherwise be difficult to verify. As for those in more risky professions, know that you will likely have to pay more for premiums—but it will be worth the money.

The Bottom Line

Most people have life and health insurance and think that they’re covered. But in order to make sure you are truly taking care of yourself and your family, you need to have insurance in place in case of disability. Better safe than sorry.

Photo credit: ItzaFineDay

Published or updated August 10, 2012.
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{ 2 comments… read them below or add one }

1 Dan S

Numbers 2 & 3 make excellent points. Disability insurance isn’t just for people who might get hurt doing manual labor at work. It’s for illness as well. Also, you’re right- the disability insurance provided by your employer may not be enough. Find out. There are excellent ways to supplement that insurance.


2 Kirk Kinder

Great article on a topic that really needs to be driven home to people. As a financial planner, I often see people completely ignore disability insurance, usually due to the cost. Clients want to talk about life insurance, but they don’t realize disability insurance is probably more important as your odds of facing a disability is greater than pre-mature death. Your ability to produce income is your largest asset. You have insurance for your home and autos – you need one for your income.


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