Disability Insurance
Insurance that replaces a portion of income if illness or injury prevents you from working.
What is Disability Insurance?
Disability insurance provides income replacement if you become unable to work due to illness, injury, or accident. Short-term disability policies typically cover 60–70% of income for 3–6 months; long-term disability (LTD) policies cover longer periods, sometimes until retirement age. The definition of 'disability' is critical: own-occupation policies pay if you cannot perform your specific job, while any-occupation policies only pay if you cannot work in any capacity. Social Security Disability Insurance (SSDI) provides a baseline but often insufficient benefit. Financial planners consider disability insurance more likely to be needed than life insurance, as the probability of a disability during working years is substantially higher than premature death.
Example
A surgeon earning $400,000 per year purchases an own-occupation disability policy with a $20,000/month benefit. After a hand injury makes it impossible to perform surgery, the policy pays the full benefit — even if the surgeon could work in a different medical capacity. An any-occupation policy might deny the claim since the surgeon could theoretically work as a hospital administrator. The Council for Disability Awareness estimates 1 in 4 workers will experience a disability lasting 90 days or more before retirement.
Source: Council for Disability Awareness — 2021 Long-Term Disability Claims Review