Do I need disability insurance?


Yes. One in four people experience a long-term disability during their careers and having a policy ensures you don’t lose your paycheck.

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Disability insurance is an important part of any financial plan. Getting coverage ensures that you’re getting a paycheck even if you’re sick or injured and can’t work. 

If losing your income would negatively affect your standard of living, then you should get disability insurance. Even for those with built up savings, depleting those accounts means you won’t be able to put that money towards long-term goals. 

Key Takeaways

  • If you don’t get disability insurance, you may need to deplete your savings to keep up with everyday expenses.

  • Most workers should get a disability insurance plan.

  • Anyone can become disabled regardless of what they do for work — 90% of long-term disabilities are due to an illness rather than an injury.

Why you need disability insurance 

If you can’t go years or months without a paycheck without depleting your savings, you need disability insurance.

Losing your income risks your ability to pay bills or support your family, which can lead to long-term financial consequences — 66.5% of all U.S. bankruptcies and more than 50% of all mortgage foreclosures stem from illness or injury-related medical issues [1] . And a disability is more likely than you think — over 25% of American workers experience a long-term disability longer than three months at some point in their careers [2]

Disability insurance isn’t just for people who work dangerous jobs. You can become disabled no matter what you do for work — 90% of long-term disabilities are due to an illness rather than an accident. And if you took out loans for your education, getting disability insurance prevents you from falling behind on those payments. 

You can use disability insurance the exact same way you use your income, to cover everyday expenses, pay regular bills, and keep up with your larger financial plan. Disability insurance protects your most valuable asset — your ability to earn an income — and should be a part of every financial safety net.

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What type of disability insurance you should get

Long-term disability insurance (LTD) should be your first option to adequately protect your income. If your employer offers or subsidizes short-term disability insurance, it’s a good supplement to your long-term disability plan. But if you have to foot the entire bill yourself, you should prioritize buying LTD. 

LTD provides income when you’re unable to work for at least three months, and can last all the way to retirement. Benefits are distributed tax-free and can be used for anything. It’s also the most cost-effective type of disability insurance. When it comes to length of coverage, benefits received, and how easy it is to qualify, there are no other options that give you as much bang for your buck. 

Because LTD doesn’t pay out for a few months, a short-term plan ensures you have some money coming in while you wait. But a short-term disability plan on its own won’t provide enough financial support. Most policies max out at six months of coverage, well short of the 36 months an average disability lasts [3]

Alternatives to disability insurance

While long-term disability is the best choice and short-term policies can work in the right circumstances, there are some alternatives to disability insurance out there. These options should never be your top choice because they don’t offer enough coverage for a long-term disability. 

  • Employer-sponsored long-term disability insurance: A LTD policy subsidized through your employer offers limited coverage and you’ll lose the policy if you leave the job. A private policy stays with you regardless of where you work.

  • Social Security disability insurance (SSDI): SSDI is extremely hard to qualify for and can take many years of appeals for people who do eventually qualify. The benefit amount is also relatively low. 

  • Workers’ compensation: Many employers offer workers’ comp, but because it only pays out for disabilities that occur on the job, it’s very difficult to qualify for benefits. 

How much disability insurance you need

You want to have the right amount of disability insurance to ensure the policy you’re paying for offers adequate protection. You should take four things into account when determining how much disability insurance to get:

  • Coverage amount: LTD pays around 60% of your gross monthly salary, short-term disability benefits up to 80%, and SSDI pays under $1,200 a month. Your benefit should cover any bills and immediate expenses, but also savings and long-term financial plans like retirement.

  • Duration: The average disability lasts for around three years. An LTD policy that lasts five years is recommended, but a policy that lasts until retirement provides the maximum protection. 

  • Elimination period: When determining how long benefits should last, you should also consider when they start. Ninety days is the most cost-effective time to wait to start receiving benefits

  • Cost: Most people can expect to pay between 1% to 3% of their annual income for coverage. SSDI and workers’ compensation are free, and employer-sponsored disability benefits are subsidized.

Disability insurance is an important part of protecting your financial health regardless of what life throws at you. Getting the right amount of coverage is the best way to replace your income if you become too ill or injured to work.

Frequently asked questions

Is disability insurance worth getting?

Yes. Disability insurance ensures that you still get a paycheck if you become too ill or injured to work. One in four adults experiences a disability in their lifetime.

What happens if you don't have disability insurance?

If you don’t have disability insurance and cannot work because of a disability, you won’t be able to pay for your expenses or maintain your standard of living. 62% of all U.S. bankruptcies are due to an unexpected disability.

Do you need disability insurance if you work?

Yes. Workers should get disability insurance to replace their income if an accident or illness prohibits them from working before they reach retirement.