Do I Need Disability Insurance?

Not sure if you need long-term disability insurance? We've got you covered.

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Who Needs Disability Insurance?

Do you have a job? And do you depend on your salary for your living expenses? Then you probably need some long-term disability insurance to consider yourself financially secure.

Like it or not, most of us depend on our paychecks to get by. Recent studies have found that the majority of Americans couldn’t cover an unexpected $400 bill, and most don’t have sizable emergency funds saved. But even if you’ve got both of those covered, if you were to become unable to work due to illness or injury and couldn’t collect a paycheck for 3 to 5 years, would you be able to pay the mortgage or rent and all your living costs during that time? If not, you need long-term disability insurance.

Why You Need Disability Insurance: The Risks

No one likes to think about their chances of becoming ill or injured. While we’d all love to live out our days sipping piña coladas without a care in the world, facts are facts:

  • Over 25% of American workers experience a long term disability longer than 3 months at some point in their careers.

  • 69% of workers have no long-term disability insurance coverage

  • 62% of all U.S. bankruptcies and more than 50% of all mortgage foreclosures stem from illness or injury-related medical issues.


You may think that disability insurance is just for accidents and that you’re not at risk if you don’t work a dangerous job. Again, the facts don’t support this idea:

  • 90% of long term disabilities result from illness rather than accident, meaning they can affect you no matter what you do for work.


There Are No Good Alternatives

Unless you’re one of the lucky few who can self-insure, meaning that you’re independently wealthy enough to live indefinitely without a paycheck, there are really no good protection alternatives to long-term disability insurance.

A good long-term disability insurance policy will pay you up to 60% of your gross salary tax-free, which comes very close to 100% of your current take-home pay. No other insurance product replaces income in the same way—the alternative is basically just gambling that you’ll never experience a disability. Consider the following:

Employer-Provided Long-Term Disability Insurance Probably Isn’t Enough

Some employers generously offer long-term disability insurance as part of their benefits package. However the coverage you get through your employer is probably not enough to pay all your living costs:

  • Long-term disability insurance provided as an employee benefit is taxed at 25% or more, and policies often cover 50% of your salary. This means that in the event of a disability you’d receive significantly less than your current take-home pay from your employer’s disability insurance.

  • If you decide to change jobs or you lose your job, you run the risk of losing coverage. A policy you purchase on your own, however, sticks with you no matter what.
  • Many people with employer-sponsored disability insurance buy a smaller private disability insurance policy to cover the gap between what their employer’s benefits will pay and what they’d need to live on. This is called supplemental disability insurance.

Social Security Disability Insurance Almost Definitely Isn’t Enough

If you’ve worked long enough to pay Social Security taxes, you may qualify for disability insurance payments through the federal government’s Social Security Disability Insurance program. However, SSDI rejects most applicants, and it won’t pay enough to cover living expenses for most who are approved—and even then, benefits are taxed.

  • 65% of initial Social Security Disability Insurance applicants are rejected.
  • The average payment to SSDI recipients was $1,130 per month as of 2012 ($1,1256 for men, $993 for women).

Workers’ Compensation Isn’t a Reliable Source of Protection

While workers’ comp may pay you up to 60% of your income for a short period if you’re injured while on the job, consider this:

  • 95% of disabilities are incurred while not on the job, meaning they’re not eligible for workers’ comp. And even if you do receive worker’s comp, your benefit amount will likely get reduced if your disability becomes a long-term condition.


What Does Long-Term Disability Insurance Cost?

If you’re still reading this article, chances are you need disability insurance—otherwise you would have stopped reading and gone back to your piña colada long ago. By now, you’re probably wondering, “So what is this going to cost me?"

That depends on a number of factors including your age, gender, health, occupation, the benefit period (or how long you’ll receive payments) and the waiting period (or low long after you become disabled until you’ll start receiving benefits).

To get the best coverage for the most affordable price, PolicyGenius recommends a waiting period of 90 days and a benefit period of at least 5 years, since most long term disabilities last about that long. Coverage is also offered all the way to retirement age if you want maximum protection.

In general, you should expect a quality long term disability insurance policy to cost 1 to 3% of your annual salary.

Still have questions? The below resources can help you on your way—or chat with a PolicyGenius expert in the chat window at the bottom of this page.

How are long term disability insurance rates calculated?

Is long term disability insurance worth it?

Long term disability vs short term disability explained

How to save on long term disability insurance

When you’re ready, PolicyGenius can help you comparison shop for the best policy from the nation’s top insurers.

Last updated on Sep 20th 2017