If you rely on your paycheck, you likely need disability insurance, especially long-term coverage. Short-term disability usually pays for a few months after a brief wait, while long-term disability can pay for years after a 90- or 180-day elimination period. Start with employer and state benefits, then fill gaps with an individual policy, since Social Security disability rules are strict.
Do You Need Disability Insurance?
If you depend on a paycheck, disability insurance deserves a close look. It replaces part of your income if an illness or injury keeps you from working.
You are more likely to need it if you are the main earner in your household, have little emergency savings, are self-employed, or have a mortgage, rent or debt payments that would be hard to cover without a salary. You may need less private coverage if you have substantial savings, a spouse whose income could cover the bills, or a strong plan through your employer.
Short-Term vs. Long-Term Disability Insurance
Disability coverage comes in two main forms, and they are designed to work together.
| Feature | Short-term disability | Long-term disability |
|---|---|---|
| When benefits start | Often after a short wait of days or a couple of weeks | Commonly after 90 or 180 days |
| How long benefits last | Usually up to about six months | Often two years, five years or to age 65 |
| Typical use | Surgery, recovery from an injury, pregnancy and childbirth | Serious illness, chronic conditions, major injuries |
| Where people get it | Employers, state programs, some individual policies | Employers or individual policies |
Short-term disability helps with a temporary setback. Long-term disability is the coverage that protects you from a financial disaster, such as a condition that keeps you out of work for years. If you can only afford one, many advisers suggest prioritizing long-term coverage and building savings to cover a shorter gap.
Employer Group Coverage vs. Individual Policies
Group coverage through work
Many employers offer short-term and long-term disability as a benefit, sometimes free and sometimes as a low-cost option you can choose at enrollment. Group plans are usually easier to qualify for, often with little or no medical underwriting. The downsides are that the employer chooses the plan terms, the benefit may be capped, and coverage usually ends if you leave the job.
Taxes matter too. Under current federal rules, if your employer pays the premiums, the benefits you receive are generally taxable income. If you pay the premiums with after-tax money, benefits are generally tax-free. That can make a big difference in how much you actually take home during a claim.
Individual disability insurance
An individual policy is one you buy on your own from an insurer, usually through an agent or broker. It stays with you if you change jobs and can often be customized. It is typically more expensive and requires medical underwriting, so health conditions may lead to exclusions or higher prices. Self-employed people and freelancers often rely on individual coverage because they have no employer plan.
How Social Security Disability (SSDI) Fits In
Social Security Disability Insurance is a federal program funded through payroll taxes, but it is not a substitute for private coverage. According to the Social Security Administration, SSDI uses a strict definition of disability. In general:
- You must be unable to do substantial work because of a medical condition.
- You must be unable to do your previous work or adjust to other work.
- Your condition must have lasted, or be expected to last, at least 12 months or result in death.
SSDI does not pay for partial or short-term disability. There is generally a five-month waiting period, and you must have enough work credits. You generally need 40 credits, with 20 earned in the last 10 years, though younger workers may need fewer. Private long-term disability policies often reduce your benefit by the amount you receive from SSDI, a feature called an offset.
Own-Occupation vs. Any-Occupation
The definition of disability in your policy is one of its most important features.
- Own-occupation coverage pays if you cannot perform the main duties of your own occupation, even if you could do other work.
- Any-occupation coverage pays only if you cannot work in any job reasonably suited to your education, training and experience.
Own-occupation policies usually cost more but are more protective, which matters for specialized professionals such as surgeons, dentists or skilled tradespeople. Many group plans use own-occupation wording for the first two years of a claim and then switch to any-occupation.
Elimination Period and Benefit Amount
Elimination period
The elimination period is the time between the start of your disability and the first benefit payment. No benefits are paid during that stretch. A longer elimination period, such as 180 days instead of 90, generally lowers your premium, but you need savings or short-term coverage to bridge the gap.
How much it pays
Disability insurance usually replaces only part of your income, often around 60 percent of pre-disability earnings in group plans, up to a monthly maximum. Insurers limit benefits so there is still an incentive to return to work. If your employer plan has a low cap and you earn a higher salary, a supplemental individual policy can fill the difference.
State Disability Programs
A few states and territories run their own short-term disability programs, generally funded through payroll deductions. These include California, Hawaii, New Jersey, New York, Rhode Island and Puerto Rico. Benefit amounts, waiting periods and maximum durations differ by program.
In addition, a growing number of states, including Washington, Massachusetts, Connecticut, Oregon and Colorado, have paid family and medical leave programs that can pay partial wages while you recover from your own serious health condition. These programs are short-term and do not replace long-term disability coverage. Rules vary by state and change over time, so check your state labor or insurance department.
Questions to Ask Before You Buy
- What coverage does my employer already provide, and is it taxable?
- What is the definition of disability, and does it change after two years?
- How long is the elimination period, and how long do benefits last?
- Does the policy pay partial benefits if I can work reduced hours?
- Is the policy noncancelable or guaranteed renewable?
- Are there exclusions for pre-existing or mental health conditions?
Bottom Line
Most working Americans who rely on their income should have some form of disability insurance, especially long-term coverage. Start with what your employer and state provide, then consider an individual policy if there are gaps. Compare definitions of disability, elimination periods and benefit amounts, since terms vary by insurer and state.
Frequently asked questions
Is disability insurance through work enough?
Sometimes, but not always. Employer plans often replace around 60 percent of pay up to a cap, may be taxable if your employer pays the premium, and usually end when you leave the job. Higher earners and people with specialized careers often add an individual policy to fill gaps.
How much does disability insurance cost?
Prices depend on your age, health, occupation, income, benefit amount, elimination period and definition of disability. Group coverage through an employer is often cheaper than individual coverage. Get quotes from several insurers and compare the same features side by side before you decide.
Can I get both SSDI and private disability benefits?
Yes, you can receive both, but many private long-term disability policies reduce their payment by the amount you get from Social Security. This is called an offset. Some insurers may also ask you to apply for SSDI as part of your claim, so check your policy terms.
Read also
You may also search for: employer coverage, pre-existing conditions, read your policy
This article is for general information only and is not insurance, legal, tax or medical advice. Rules, coverage and prices vary by state, plan and insurer. Check your policy documents and speak with a licensed agent before making decisions.
